There comes a time for every private company business owner to exit the business. Just as there is certainty with death and taxes, a business owner cannot ignore the fact that he or she will need to exit.
Planning for the event allows the business owner to exit on his or her own terms, says Mark G. Metzler, a director and Certified Exit Planning Adviser (CEPA) at Kreischer Miller.
Smart Business spoke with Metzler about things to keep in mind as you plan your exit strategy.
What exit strategy options are available to a private company business owner?
The most prevalent exit strategies include:
■ A strategic buyer — This person often is in the same business and is trying to increase market share, access new markets or acquire expertise or management resources.
■ A financial buyer — Generally referred to as private equity, venture capital or an investment fund. This type of buyer typically looks for undervalued companies, provides financial support and exits in the shorter to medium term.
■ Family members — This strategy may be accomplished through estate planning.
■ Employee Stock Ownership Plan — An ESOP is considered a hybrid exit strategy as the owner is selling to a trust owned by the employees, but often is still managing the business.
■ Corporate partnership or joint venture — Allows the company to explore a relationship before jumping in with both feet.
■ Initial Public Offering — A rather costly and complex option not suitable for most companies.
Why is choosing the right exit strategy so important?
Exiting a private business is complicated and often, the majority of the business owner’s wealth is tied up in the company. Unlike selling shares of your personal investments in Apple or Microsoft stock, selling your private company is not as simple as calling your broker or executing a trade in your E-Trade account.
When should owners think about exit planning?
As with many things in life and business, proper planning prevents poor performance. It’s never too early to think about exit planning and the most successful transactions occur where adequate planning has occurred. In order to allow for potential false starts, it is not unusual for owners to start the process five to 10 years prior to a contemplated event.
What first steps can be taken to ensure the right exit strategy and enhance value for the business owner?
Enhancing the business owner’s value begins with the process of identifying the owner’s business and personal goals and objectives. You cannot ignore this step. It’s critical that there is a clear understanding of these goals and objectives, as there are different advantages and disadvantages to each of the exit or transfer options.
It is also important to see the business through the eyes of the potential acquirers to understand how their various objectives and values fit with the seller’s personal and financial goals. Once this step is completed, finding the right buyer, preparing the business for sale and closing the deal can be accomplished.
What about the sales price? Isn’t money the most important aspect of an exit?
Companies that have been through the selling process understand that while everyone desires a fair selling price, money often isn’t the overriding factor.
Other motives, including employees, community, family and legacy are often very important to the seller and should not be ignored. Choosing the deal that’s right for the business owner may not be all about money. A business exit is an emotional event. Because the owner’s personal and professional identity is often associated with the business, there may be a psychological loss after an exit.
Therefore, owners should assess their readiness for an exit and evaluate life after the business. All business owners will exit their business at some point. Identifying the right exit is dependent upon, first, identifying your goals. You may then find that the rest of the process is just details. ●
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