10 Crucial Exit Strategies foremost to a prosperous Sale of Your business

Asset - 10 Crucial Exit Strategies foremost to a prosperous Sale of Your business

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Five years after helping a client to sell his business, I received my final check and placed a call to the someone who represented the buyer. In discussing the history of the transaction and tying up loose ends, we came to the closing that a sale isn't faultless until you have survived the negotiations and the closing, cashed the final check, confirmed that the statute of limitations has run out for all contingencies and verified that the new owner(s) are happily making money.

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Good deals don't just happen. They take making ready and work. Often a great deal of work and years of making ready are consumed before a sale can even be contemplated. Forging the transaction, itself, may take everywhere from four months to two years, and the payout, unless you sell at a discount, can as a matter of fact be an additional one five years. Good succession planning, and the development of viable exit strategies, are key to crafting the best deals.

No plan, no profit. What happens when there are no exit strategies?

Bruce Barren, Group Chairman of The Emco/Hanover Group, international merchant bankers who have done more than billion in financial transactions, puts it this way, "If you want to ensure a successful transition, you need to create a box of exit strategies as part of your overall succession plan. Everyone in firm has heard bad dream stories detailing what happened when there were puny or no exit strategies. The more exit strategy capabilities, the higher the success rate for transactions. Success is, of course, contingent on being realistic, particularly in relation to the reliability of financial projections."

Some bad dream stories focus on owners selling out for too puny because they did not know what their firm was worth, had not developed the people and system infrastructures to demonstrate value to buyers, and were forced to sell at a reduction or on compromising terms. A few stories tell of how sellers failed to identify, or furnish for, all contingent liabilities. They were ruined when the claims later passed straight through to them. In instances where the founder sells out and remains with the business, poor deals can mean years of what can only be called "indentured servitude."

Still other stories show how the lack of exit strategies whether resulted in short-term cash flow problems (tax issues due to stepped up asset values) or lifestyle issues (annuity issues relating to the timing of payments from the business). In some instances, the lifetime legacies the sellers wanted to support were lost because they had failed to get ready for the future. increase strategist and succession planning consultant, Aldonna Ambler, Cmc, Csp, has observed, "Some firm owners need to be enduringly reminded that one of their major goals (if the The major goal) is to increase the Value of the business. Not only will the firm owner have the pleasure of a job well done, he/she ensures financial safety when there is a strong firm to sell."

How do you get ready succession and exit strategies that make you feel good about the deal and help the buyer feels good about signing your check?

Barren notes, "Preparation is everything." Succession planning tools gets you in touch with your mortality, both corporal and psychic. during the process of evaluating options and exit strategies, valuation tools give you a sense of realism about what your firm is as a matter of fact worth. Unfortunately too many firm owners have a psychic dollar value for their firm that few buyers accept. Counting on receiving those psychic dollars at the time of sale, or as part of the transaction, regularly results in dissatisfaction and disappointment. This is particularly true when the owner is expecting a sure number from the annuity payments for the firm sale to augment other financial planning elements. It's a rude awakening when it just isn't there.

Your business, tax and financial advisors need to work hand-in-hand on the firm valuation and your personal estate plan, as well as the estate plans of all other valuable owners' of the company. In one of my cases, we postponed the sale of the firm for some years to build up its value plainly because one of the owners would not have received enough annuity value to meet his financial needs in retirement. Trying to force the transaction cold have derailed a deal (buyers regularly locate potential problems during their due diligence) or prompted acrimonious litigation at a later date.

Evaluating exit strategies also brings you face-to-face with the concept of letting go and thinking about what you can do with your life when you don't have to go to the office anymore, or it's no longer your job. With founders, it helps to create a decision as to whether s/he wants the firm sold or "adopted," that is, found a good home under like minded rights (usually at a below the best attainable price).

There are many exit strategies that you can reconsider foremost to the eventual sale of your business, whether you plan to stay on with the company, or not. Good strategies furnish win-win opportunities for both wholesaler and buyer. Here are a "baker's dozen" of the best:

1. Refinance the assets, or the cash flow, to bring in added funds (equity and/or debt) to facilitate increase or furnish for a convert in equity.

2. Take the firm public, whether straight through an initial collective gift (Ipo), or by acquiring a clean collective shell company, or by being acquired by a collective company.

3. create an laborer stock rights plan (Esop), whereby the employees buy the firm over time. This choice has become less attractive, or unavailable in the time to come as enabling legislation changes.

4. originate a dividend strategy with a publicly firm (this strategy requires at least two years of audited financial statements).

5. Use succession planning techniques to setup pro management in the firm and structure the firm to furnish an ongoing annuity to the owners.

6. A incompatibility on #5 is, to bring in key managers who can eliminate sure costs or accelerate sales performance.

7. Sell to a strategic buyer in your industry, or one with complimentary products/services that wants to get into your industry. One choice most firm owners do not reconsider is exiting straight through the sale of a larger firm to a smaller firm with the receivables of the larger entity and the assets of both providing the basic basis for financing.

8. Sell to an equity buyer, or fund, with a portfolio of companies.

9. If you are a Boomer, recruit a team of Generation X types and allow them to craft a leveraged buyout.

10. increase the intangible value of the firm which in turn increases the overall value of the company, thus causing less dilution.

Bonus strategies:

11. If a house business, begin gifting rights in the firm to house members as early as possible. Make sure some next-generation house members exhibit strong leadership, then structure the transition around them.

12. Orderly liquidation. In some instances the exit strategy can involve shutting down the firm and liquidating, or licensing, the assets. This can be efficient when there are no clear successors, the firm is based on a technology that is dying and/or, current and potential firm volume, do not illustrate continuation on a stand-alone basis.

13. Cut costs to increase cash flow, particularly if you have restrictive loan covenants.

"To resolve which exit strategy, or strategies are best for you, consult with complicated sources, in addition to your attorney and Cpa, in order to gain a true independence of concept and a testing of those opinions rendered," Barren notes. A solid team of advisors, working with you and under your direction, is what you need to faultless a full succession process. Succession planning has few shortcuts, and it regularly takes about 4-6 months to craft the plan. Other troops may require faster action, such as a cash flow crisis, or the need to fund R&D or other needs at a valuable point.

Compromises are part of every sale but often multiply when succession planning has not been in place for long. In such instances sellers often bear most compromise costs. One last note on advisors -- select advisors who are familiar with the store in which you are dealing, both in terms of wage and industry. The counselor with the international imprimatur may not be your best choice for sure deals.

If you allow yourself to get bored, or weary with the process, it will cost you, maybe dearly. This happens all too often with women firm owners. Ambler notes, "Women owners are 5 times more likely to dissolve their businesses than their male counterparts. It is so sad to observe a hard-working woman firm owner close the doors in exhaustion still wondering what she could have done differently."

Solid making ready gives the power of perspective, allowing you to reconsider your best exit strategies and find your best successors. It's that easy and exit strategies are that important.

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