How To Plan For Your Exit
When planning the beginning of your business, you should also plan the exit of your business. It’s the responsible and elegant thing to do. There are many ways to exit your business, here are some of the most popular.
Liquidate your assets
Closing your doors and selling the assets can quickly bring in a lump of cash. There aren’t any negotiations involved or passing along control, the business simply comes to an end and closes. If you have debts however, the sales of your assets will be paid to your creditors. The remainder will be divided among the shareholders if any. That may leave little to no money left for you.
Liquidating your assets is probably the least desirable of all exit strategies, but sometimes the most necessary. If you are in a lot of debt or simply cannot run the business anymore, you may not have another choice. Liquidating may include selling your inventory, office building, company cars, office furniture and electronics. Typically, you are selling at market price and will rarely make much of a profit.
One of the downsides of liquidating your business is not leveraging the potential value of your customer list, proprietary business systems/procedures and any relationships you may have forged. Leaving your existing customers high and dry can burn bridges that may never be rebuilt.
Sell your business
Selling your business to another buyer is a profitable way to exit your business. You will need to get an appraisal of the business and it’s best to get more than one. Selling your business can include selling to a family member, customers, employees, another company, etc. In exchange for the business, you get cash. It is recommended that you seek out a few business appraisal companies to get quotes from. Each will have their own strengths and expert areas and can help you prepare your company for sale as well.
Once you get a proper valuation of your company, you are ready to sell. Ultimately, you’d want the buyer to be someone that knows the business, knows your vision and has the experience to carry on the legacy of your brand. That’s why so many small businesses are sold to family members. They know the person taking over the business which means not as much due diligence needs to be done and they typically have the background experience to carry on.
Selling your business can be done much like anything else you’d sell. If for instance you’d like to sell your company to your daughter, but she doesn’t have the capital to buy from you, you can have her pay it off in installments agreeable to both of you. The terms are negotiable, consult your attorney.
Acquisitions & Mergers
Although acquisitions and mergers are usually used interchangeably, there is a slight difference between them. An acquisition occurs when a business acquires another business. For example, Company S buys Company T and still operates under the brand name Company S but has the capabilities of both companies. A merger is when two businesses come together and move forward as a single new company. A good example of an acquisition is when AT&T bought Cingular. Although AT&T had a lengthy transition period, Cingular was folded into the company along with it's customers and it operates as AT&T. An example of a merger would be when Daimler-Benz and Chrysler merged forming a new company called DaimlerChrysler. Typically, businesses that engage in an acquisition or a merger are in the same or similar industries and see a benefit in acquiring or merging with one another. There is usually a strategic fit between the businesses.
When you involve your business in an M&A, you can negotiate price and terms. If you have employees, you can request that they be kept on for a certain period of time after the acquisition or that your management team be retained. You can negotiate final price and annual payouts, it’s pretty much all up for negotiation. If you aren’t comfortable negotiating these things yourself, it serves you to hire an agency that will do this for you.
Initial Public Offering. This is the most expensive and time consuming of all exit strategies. Taking your business public can be very costly with attorney and accountant fees, but can also be very rewarding. You’ll need to adhere strictly to Sarbanes-Oxley and you’ll eventually be answering to your board of directors and shareholders. You are no longer the boss, they are. If you sell off your portion of shares, your company lives on and you’ve made some money.
Getting professional guidance from your attorney and accountant is the only way to attempt taking your company public. It’s recommended however, that unless your revenues are above $10 million you should consider other exit strategies.
A few things to think about when planning your exit strategy:
• When planning the sale of your business, decide what’s best for you. Set up terms to benefit you and your future, within reason of course. Do you want to stay working with the company? Do you want a percentage of revenue for a determined amount of time after you’ve sold? Do you want to keep your executive team on or employees guaranteed their jobs for a certain period after sale?
• You need to operate your business from day one with the mindset that you could potentially sell it later. That means documenting everything, keeping good records, getting signed contracts whenever possible and keeping up good relationships with clients and vendors.
• Be sure to find a buyer that you mesh well with. Someone who knows and understands your vision, has the company’s best interests at heart and someone you genuinely like. Now, that’s not to say that you should sell someone your company to someone just because you like them, but it’s helpful.
• Decide what it is that will make your company attractive to buyers and cultivate that. Is it your product? Is it your proprietary information? Is it your customer database? Whatever it is that you have that a potential buyer wants, fertilize and grow it from day one.