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Are You Thinking About Planning Your Exit?


In the first part of this series, we introduced the five stages of entrepreneurship we work with on a daily basis.

Finally, we come to the last of the five entrepreneurs we typically see.

Meet The Exiter.

If all goes well, one day you might get to this happy state — where the business is a success and you’re looking to cash out. Maybe you’re heading into retirement and afternoons on the golf course, or maybe you’re off to start a new venture.

In either case, you want to exit the business and receive maximum value for it. That’s more complicated than it seems, especially since a 2014 study by Securian Financial Group reported that more than six in 10 small business owners looking to cash out in the next decade don’t have an exit plan–and aren’t working on one, either.

Don’t be one of those businesses.

Fear not, because you’ll do just fine–if you take the proper steps to ensure a good outcome.

For one thing, you need to select the right advisor, preferably someone who’s handled numerous past exits. There’s no substitute for experience. Hiring a lawyer is a good idea, too.

And even if you hire a good advisor, there’s a long slog ahead: You probably should start cleaning up your business and its balance sheets a full three years before a sale. Always remember that an exit strategy is a process that requires a lot of planning.

That planning should start with a determination of goals (both business and personal), followed by an assessment of your financial and mental preparedness. After that, you can identify your exit options and weigh the plusses and minuses.

Don’t forget the human element, either. If employees sense your departure is eminent and they’re unsure of the direction you plan to take, many might jump ship. Not only do you lose institutional memory, but the company may be less valuable to potential buyers if key managers are gone.

If your business is successful, you owe a gratitude of debt to your employees. Don’t leave them in the lurch.

Only then can you consider action items such as the structure of the deal and taxes.
So, what exactly are some common exit strategies?

Merger and acquisition (MA) is one option, which usually means being bought by a larger company. Companies are able to save resources when they combine.

Another possibility–although declining somewhat in popularity — in the Initial Public Offering (IPO), where the company is sold to shareholders. Be warned that the number of people getting obscenely wealthy via IPOs has dwindled in recent years, and the Sarbanes-Oxley Bill made the process more complicated.

Instead of combining with another company as in MA, an entrepreneur can always sell to a friendly individual, which might be a better way to maintain a legacy. A successor often is a family member, such as a father handing over the reins to a son or daughter.

We talked about milking the cow in a prior installment, but that’s a possibility as well. An entrepreneur whose company has a strong, stable revenue stream can pay off investors, have someone else run the operations and enjoy the remaining cash–or use it to start a new business.

Finally, you can always just liquidate the company and simply walk away, although that might be difficult for entrepreneurs with emotional attachment to what they created.

Before you read this, cashing out may have seemed easy. Now that you know otherwise, it’s time to think about the future. There’s no time like the present.


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