Do you avoid talking about exiting your business? Do you refuse to write a will? When people bring up the subject of business exit, do you say you’ll deal with it when the time comes? Are you afraid of what would become of the company that you built if something happens to you? What would your employees and family members do?
Addressing the subject head-on and on time will allow you to:
- Protect your loved ones,
- Perpetuate your company, and
- Optimize your professional assets to maximize the sale price and minimize the tax impact.
Or you can leave the futures of your family, employees, and company up to chance.
While you consider the ramifications of this vital discussion, let me throw more light on exit planning for you.
What Is an Exit Plan?
An exit plan maps out a business owner’s departure from the business. This includes leaving your own company, leaving a company in which you own shares, or a planned withdrawal from the market.
This strategy entails a targeted and systematic approach. The plan’s primary goal is to achieve the highest possible profit with the exit (which usually equates to a sale). For the company founder and the managing director, this means either selling the entire company or only one’s shares, should there be co-founders or shareholders. This strategic plan enables a business owner to liquidate stock in exchange for funds, in other words, to be “bought out” of the company for profit.
It takes extensive planning (as in years!) to ensure that you have a seamless exit from your business. But why would you want to sell?
Why Would I Want to Exit?
Just because you are involved in and excited about your business now does not mean you should not also start thinking about the end of your involvement. Even if you plan to work until you die, you should have an exit strategy before starting a business. Making exit-related decisions prepares your business for profitability if you decide to part with it later. You can also put an exit strategy in place when you are ready to move on to your next project or business and realize that you’re willing to sell your current business. Here are three main reasons to plan your business exit:
- You decide to sell the company to a successor,
- An emergency requires you to sell the company, or
- The competition overwhelms your ability to sustain market share.
Sell the Company to a Successor
It is not easy for any entrepreneur to part with his own company. Nevertheless, thousands of companies are transferred to new ownership every year–usually for reasons of age. A reasonable price for the company at least alleviates the pain of parting. And for many, the company also doubles as the owner’s pension plan.
Unfortunately, emergencies result in hasty corporate takeovers. These often include unexpected death, health complications, traumatic injury, etc. When that happens, the unprepared company suffers from a lack of direction. If management has not made provisions for such an emergency–for example, in the form of powers of attorney, will, and interim representation–the situation quickly becomes a matter of survival.
In such a situation, experienced, long-standing employees may be asked if they are willing to take over the company. Preparing those employees to take over the company saves your job and your colleagues’ jobs. The pressure is enormous because you have to serve your customers and pay the bills. Nevertheless, you should not sell your company in a rush.
A constantly and often radically changing market has a tremendous impact on medium-sized companies. Overwhelming pressure from increasing competition forces many owners to consider throwing in the towel. The owner who sells his company to a competitor should get the best price and do his utmost to secure his employees’ future.
Why You Need an Exit Plan
There are several issues to address if you want to sell your company. Primary concerns focus on the price and a suitable company successor, but selling your own company also poses a significant challenge from a psychological point of view. Therefore, an exit plan helps you address all those challenges in the right way.
Avail yourself of the following benefits by moving forward with an exit plan to:
- Make reasonable decisions for your business.
- Increase the value of your company.
- Add in flexibility for you (freeing some time).
- Save a headache if you must perform an emergency exit.
The Problem with Postponing an Exit
Postponing your exit planning process may cause a mess when you do try to exit. (Remember, you won’t stay there forever!) A time may come when your expertise and skills are insufficient to run and expand the business, which can ultimately lead to closing it. A hasty, unplanned exit causes problems for you, your family, employees, suppliers, and customers. The situation becomes more complex for companies struggling with declining sales and revenues. No one can foresee when economic conditions will normalize, and stability will prevail.
In such situations, a high-risk premium applies to every purchase price determination for a company, and previously generated successes and income mean little or nothing.
Postponing an exit replaces what could be a smooth, orderly, goal-oriented process with havoc and worry.
Now, let me ask you again: Are you still comfortable postponing your business exit? I hope not!
If you have started to regret postponing your exit plan, here is the good news…
Quantive Can Help!
The bottom line is you need to get started on your exit planning process sooner rather than later. Selling a company is a laborious process that won’t take care of itself: you need the right advisors by your side. With experience in numerous business exits, Quantive is thoroughly qualified to help you through this process.