Exit planning is a process that, if well managed and executed, should give any seller an outcome that meets or exceeds goals, and maximizes financial return. When asked about future plans to exit, most business owners have no plan whatsoever, or may answer something like, “When the right buyer shows up on my doorstep, when I am ready and they meet my price.” Getting an excellent price just when one feels ready to transfer ownership doesn’t just happen. The knowledge and skills required to develop and run a business are vastly different than the skills required to sell or transfer a business for optimum value.
Because the skill set is different, it is in the seller’s best interest to work with a team of experienced advisors to navigate the time-consuming task of creating and executing an exit strategy. The value your advisors provide will:
- Increase the value of your business before going to market
- Put certain company assets in your pocket versus giving them to a buyer
- Reduce tax implications
- Keep the process on track
- Assist to maintain confidentiality so the word doesn’t get out
- Minimize or eliminate landmines early on
- Allow you to always be ready
- Dramatically increase the likelihood of success
Your M&A advisor will work with you and a team of experts to create a written plan. This plan will include:
- Define what your exit means to you.
- With whom will you be open to have discussions? Family members, employees, competitors, customers, strategic buyers, private equity groups, other investors?
- Is gifting an option?
- Are you interested in a merger?
- Are you looking for partial or total liquidity?
- Would a recapitalization make sense?
- Establish your goals.
- How do you envision your life after selling? Do you want to retire completely or be available to transition the company to new ownership for 1 to 5 years?
- Is your business positioned to sell now? Is it financially and operationally sound?
- How much income do you need post-sale?
- Are your spouse and other family members aware and on board with your exit plan?
- Do you have an established timeline? Do you hope to sell in 2 years, 5 years, 10 or 20 years?
- Put it on paper.
- A statement of objectives
- A periodic valuation of the business
This should be conducted by an outside party familiar with what buyers are paying for like-kind businesses. It will take into account uncontrollable factors (such as economy, interest rates, etc.), as well as those that are controllable (earnings/cash flow, management, diversification, etc.)
- A thorough analysis and positioning of the business
Is the business in the best possible position to sell today, or is an enhancement plan in order?
- Strategies to address your particular situation
- Contingency plans, in the event of the unexpected (illness, death, loss of key employees, downturn in the economy)
Close the gap.
- Put very simply, this is an exercise in defining where you are currently, where you want to end up, and the gap between the two. As simple as that sounds, it’s actually a process of evaluating many combinations of exit strategies to see which situation provides the best possible outcome, in terms of wealth and lifestyle.
Planning and executing an exit strategy can be a complex process that calls on many areas of expertise. Your M&A team will help you identify and analyze all options and opportunities, understand the pros and cons of different scenarios, maneuver the mazes of taxation, financial planning and legal issues, and meet the goals you established. You and your advisors should revisit the plan annually, and make any necessary updates.
For help in any stage of your planning process, or for advice on how to get started, contact Mike O’Malley at 913-648-0185.