Business Exit Briefing
The five mistakes to avoid long before you decide to exit your business
Will you exit your company the way it began, on your terms?
Chances are you have owned your successful organization for many years. After all, you chose to bet on yourself, live the American dream, and in doing so build a successful company. More than likely you will one day look to continue that dream into a successful post-business life when you sell or otherwise transfer you ownership interest. You should begin to address your exit 1-7 years in advance depending on who you plan to have as the new owner(s). Before you set your sights on an exit strategy there are five things you should know well in advance.
The nicest thing about not planning is that failure comes as a complete surprise, rather than being preceded by a period of worry and depression.Sir John Harvey Jones
#1 Who? Who are you planning to sell to and when is this going to occur?
Are you planning to sell to insiders such as family, key-employees, or both? Your heart may be telling you yes on this but your wallet may be saying no. Conversely, if you seek a third party buyer who is that party and how will you find them? There are typically three types of third party buyers: Strategic, Financial, and Owner Operators. Each comes with its own unique challenges and circumstances in structuring a deal.
#2 Where’s the money coming from?
Transferring your company to family and or key employees may be the most desirable exit path. However, when considering the lack of collateral and equity these insiders often have they can easily be ruled out as the next generation of owners if not planned for well in advance. Surprisingly, most third party sales now a days are often not structured as a 100% cash out move on type of scenario. You may be required to stick around or otherwise receive some form of “earn out” of the entire sales price over years.
#3 What’s the company worth?
Business owners seem surprised often by what someone offers them for their company in context to what they may think it is worth. What you think the company is worth and what someone else is willing to pay are often two different numbers. We can provide a proper business valuation on your company to clarify this.
#4 Can the company survive without your leadership?
Well before you can look to sell your company for fair value it will need leadership and management other than yourself. If you are selling to a third party the offering price is certainly influenced by how well the organization can function without you. Similarly, if you sell or transfer to insiders you should be very confident they can run the company if you decide to leave and expect them to pay you after you are gone.
#5 Do you have a plan?
Seldom, if ever, is a company successful by accident. Most successful companies spend a good amount of time budgeting and planning for the success they enjoy. This is no different when it comes to properly exiting your company. Transitioning a successful company requires a different set of skills than building it. This is where business exit planning is a resource to both you and the future stakeholders of your company. You will need to budget and plan properly for both the company and you personally for a proper and successful exit strategy to occur. Knowing what you need to live off now and in post-business life based on both company and non-company assets is vital to your financial success. Proper business as well as personal financial and estate planning will allow you to prioritize and properly prepare yourself and the company in advance of your exit.