Getting Through the Exit Maze

Jan 24, 2019

As business owners mature, they naturally begin reflecting on their careers and what they want to do with the rest of their lives. They begin thinking about their greatest asset, the business they’ve started and built throughout the course of their career. Are you ready to exit your business? Ask yourself:

  • Do you really want to exit your business?
  • How do you want to spend the rest of your life?
  • How do you cash out and maximize the value of the business?
  • What financial resources do you currently have to support your planned lifestyle?
  • What must the sale of your business yield to complete your financial resource package?

If your vision of the future is a bit fuzzy, perhaps you are not ready to exit. But many of the topics discussed here are still applicable, because some day you will be ready to leave the business. You need to roughly budget the cost of your future.

Every business owner will answer the above questions in his or her unique way. To make a plan that works best for you, create a team of advisors to guide you in this major decision. Typically your team should include an investment banker, accountant, lawyer, and sometimes a trusted business confidante. One person should be team leader. Make sure you choose people who are highly experienced in dealing with exit situations.

Because no two transactions are the same, unique situations will arise during the process. It is not uncommon for transactions to reach an end without the players understanding the end has been reached. What you should remember is that generally, however you’ve answered the questions, your desires can be worked through and accomplished.

In this article (the first in a series of three), I will take you through the first part of the exit process, strategic planning.

Strategic Planning

Once you’ve decided to sell the business, you have to make sure that the business is ready to be sold. If you want to impress a potential buyer, have a comprehensive business plan in place. Along with your trusted team of advisors, start analyzing the business plan, numbers, operations, and personnel to make sure that the business structure is both sensible and sellable. In many cases, you’ll have to design or redesign the business plan to maximize shareholder value. The plan should show a company with positive trends, direction, and appropriate focus, among other attributes.

Here’s what buyers look for in a company:

  • Profitability with positive trends
  • Strong balance sheet
  • Growth
  • Strategic direction and a plan to achieve future successes
  • Experienced key management in place for continuity of the business
  • Solid workforce
  • Products and service offerings
  • Strong sales and marketing
  • Good reputation
  • Identifiable intangibles (patents, copyrights, etc.)

You will often hear about the hidden or intangible value of a company. These assets bring value and sometimes add substantial value to a business sale. During the planning process determine all the alternatives available to you and your company. Some of the exit alternatives you may want to consider are:

  • Outright sale
  • Financial buyers
  • Strategic buyers
  • Owner/operator
  • Management buyout via Employee Stock Ownership Plan (ESOP)
  • Total sale of the company to a trust
  • Partial sale
  • Recapitalization

For example, a “partial recapitalization” involves selling a piece of the business and retaining a piece in order to get a second “bite of the apple” when the business is sold. A “full recapitalization” is when the owner cashes out and may exit or stay on without a financial interest.

Every business owner can find the solution that best fits his or her needs. The first step is to determine what you want. Then, gather you team and create a personalized plan to achieve your goals. Once you have done this you are ready to begin succession planning, which I will address in part two of this series.