There is no such thing as a "one size fits all" exit strategy. There is, however, a systematic process for planning and implementing an exit strategy. Every business owner has personal goals and interests to consider. The idea is to leave when the time is ripe and on the most favorable terms.

There are several options for how an owner leaves the business. Each option has advantages and disadvantages.

• Sell or transfer ownership to one or more family members
• Sell to the other shareholders, if there are any
• Sell to a key manager or managers
• Sell to the Employee Stock Ownership Plan (ESOP)
• Sell to a third party
• Sell a portion of the business to an equity partner or merge with another firm
• Refinance and add debt to take part of the owner's investment off the table
• Go public. Conduct an Initial Public Offering (IPO) if the business is large and interest is high
• Liquidate all or part of the business and its assets

A good exit plan presents a thorough, objective analysis of the owner's viable options. The planning weighs the options in relation to that owner’s own goals and interests, along with the interests of other stakeholders.

Ten good reasons for exit planning are to:

1. Give the business owner greater peace of mind
2. Help achieve both personal and business objectives
3. Develop practical options
4. Control how and when you exit
5. Maximize the value of the business
6. Ensure survival of the business after exit
7. Facilitate timely retirement, if that is a goal
8. Reduce employee and family uncertainty
9. Minimize or defer taxes
10. Preserve family harmony

A frequent mistake occurs when the business owner tries to do the job alone, without a team of specialists who are experienced in the complexities of exit and estate planning. Often, selling the business is a once-in-a-lifetime event. An extreme imbalance occurs when a business owner encounters a potential buyer who has previous buy/sell experience. Some would say that acting without the benefit of an experienced team at your side is being "penny wise and pound foolish."

Ideally, the owner engages a trusted lead advisor with strong business experience to work with a team of specialists including a CPA, a personal estate planner/insurance advisor, an estate attorney, and an investment banker or business broker. The investment bank may call on a business valuation firm or other attorneys to address specific issues. Small businesses might consider a business broker instead of an investment bank, however investment banks generally have much broader experience and deal-making capabilities. Brokers tend to work with businesses with annual revenues under $5 million. Both brokers and investment banks tend to work to achieve a speedy sale. They do not necessarily focus on the business owner’s personal goals and plans. That is why a combination of business advisors and personal advisors works best.

Exit planning begins with detailed data and fact collection about the owner's vision for his or her future, business data, the industry, financial history, business operations and staffing, plus family and personal goals.

The analysis proceeds to objective business valuation, review of estate plans, alternate structures for sale of the business, potential ways to enhance the company’s value to a buyer, and a tax review.

Recommendations from the advisory team then help establish salability and a anticipated price range. Alternative terms and deal structures begin to take shape as the owner rejects some of the exit options. The team recommends ways to maximize value and minimize the tax bite of a deal. The team may raise legal issues to be resolved prior to marketing the company. Recommendations result in owner decisions and specific action plans, along with assignment of responsibility and a timetable for completion.

Finally, implementation begins. Internal due diligence prior to marketing the firm is an excellent first step. A tax plan lays out ways to minimize the tax bite, and the estate plan incorporates expected net proceeds from the owner’s exit and endeavors to manage the owner’s assets so that the owner achieves the pre-determined personal and family goals.

The investment bank or broker develops an offering package to describe the company and its potential value to a qualified buyer. The bank first communicates with a list of potential buyers using a brief client profile that does not disclose the seller. The bank invites interested parties to make contact and, if qualified, sign a non-disclosure agreement (NDA). It is very important to protect confidentiality during the marketing process.

Once a potential buyer executes a NDA, the bank forwards a copy of the offering package and begins a separate dialogue with each qualified potential buyer. Potential buyers may take 30-45 days to consider the package and decide whether or not to submit a proposal.

The bank receives proposals from potential buyers and evaluates the results with the business owner. Evaluation of proposals usually leads to more discussion and the choice of the most attractive offers to pursue. Negotiations should result in a letters of intent, or offers, that the owner and advisors then evaluate.

Mutual due diligence takes place with the intended buyer, along with drafting of agreements that establish the final terms and conditions of sale and transition. The bank works with the owner and the buyer’s attorneys to resolve any open issues and ensure the final closing of the deal. Overall, about half of all letters of intent or offers fall through in the final stages. Therefore, it is vital that a business owner exercises great care in choosing advisors who can anticipate areas of concern and who will stay proactive during the entire exit process.

Please contact me if you need more detailed information about exit planning or building an advisory team.