Planning Your Exit Strategy

Business owners often plan to take more personal time off, to work fewer hours, or spend more time in community activities – – but how often do we take the time to develop a business strategy well in advance to make our personal dreams come true? If you plan to exit from your business:

Plan Several Years in Advance

Exiting a business via the most appropriate option is a process, not an event.  This process, if properly done, can take one to three years or more.  Most owners of private companies do not begin exit preparation early enough.

Do Tax and Estate Planning Now

There are options available to sellers to save or defer taxes when you transfer your business via sale or other option.  Potentially devastating tax bills down the road can be significantly reduced.  However, some of these options are effective only if done early.

Retain A Competent Business Intermediary

Have the intermediary work with your accountant and other specialists to evaluate your business and develop the exit option and strategy that best accomplishes your goals and timing.  The available types of liquidity options vary depending on the size, value and strategic characteristics of the business.  If sale of the business in some form is the agreed strategy, the intermediary, working with your other specialists, must develop an accurate “offering memorandum” to make available to qualified prospective purchasers.  Additionally, the intermediary should research the market to identify both strategic and synergistic buyers and handle most of the responsibilities associated with the sale allowing you to continue your focus on the continued operation of the business.

Consult Your CPA

The first financial statements given to potential buyers, investors or lenders set the stage.  Subsequent revisions are at best viewed with skepticism.  If owners want to retain personal ownership of real estate, equipment, copyrights or patents, get them off the balance sheet before showing them to potential buyers or investors.

Any items that are not useful to the operation of the company need to be removed from both the financials and the company locations.

Retain an Experienced Transaction Attorney

Few attorneys are specialized in law relating to the various types of business ownership transfer. An experienced specialist can assist you in preparing for and navigating the way through the execution of these types of transactions. Ensure that your company or corporation is in good standing, that minute books are current; that all legal documents such as leases, employment contracts, supply contracts, license agreements and all other legal documents are in order and available for inspection.

Examine Your Company As Buyers Would

Be the first to conduct “due diligence” on your company.  Put your company through a review that goes well beyond financial records to cover operations, marketing, personnel and technology as well as legal, regulatory, environmental, insurance, contractual, credit and accounting issues.  Engage an outside professional to make the process objective and develop a program to fix what the exercise indicates needs attention.

Fill Gaps in Management

Most buyers, investors and lenders consider management their top priority.  Fill gaps in management, either internally or from the outside.  There should also be at least the blueprint of a succession plan in place.

Continue “Business as Usual” Operations

The successful sale or transfer of a business can often take between 12 and 36 months depending on market conditions, the economy, etc. Diverting attention from operating the business to concentrate on the sale or transfer can result in loss of profits which reduces the value of the business. Conversely, going through the steps outlined herein and acting upon advisors’ recommendations can substantially increase the value of the business.