Plotting Your Exit

After running your business for years — perhaps decades — the thought of no longer being involved in it may be a welcome one, especially if you’re retiring and thinking about all of the time you’ll have to relax and do the things you enjoy.

However, the bridge between managing your business and retiring (or moving on to another project) must be crossed first. You have to execute your exit plan. Let’s examine the options.

SALE

If you choose to put your business on the market, use a professional broker who can help you maximize what you get on the sale. As you begin this process, create a plan well in advance that will grow your business to maximize the sale value and prepare for a sale by making your business as attractive as possible to potential buyers. Here are some things to consider when determining if this is the right option for you:

  • What are the tax consequences of a sale?
  • Will you be able to get the price you need in the time frame you have in mind?
  • How difficult will it be to find a buyer?
  • How much do market factors impact your business and what is projected to happen in your industry and the market in your desired sale time frame?
  • What are your goals for the terms of the sale? Are they realistic?

ACQUISITION

Your business may be in a position to be acquired by another company that has a similar product/service, or a similar customer base. This is commonly called a strategic acquisition. The buyer may want to acquire you for a variety of reasons – your company assets, access to your customers, intellectual property, or to remove you as a competitor. Consider:

  • What companies, if any, are potential acquirers? If you are considering this option, it may be because you’ve already been approached by an interested company.
  • What is your value to an acquirer compared to your value to a buyer in the open market? It could be more or less, based on why the other company wishes to acquire you. In some cases, the value may be much greater if the company is acquiring you for strategic reasons.
  • What are the tax consequences?
  • Will you be required to stay with the company for a transition period? This is often the case. Do you want to do this? What are the risks to you if the acquisition/merger does not go well? Make sure that the terms of acquisition include protections for you in case this occurs.

ESOP (Employee Stock Ownership Plan)

You may set up a plan that allows your employees to purchase the company over time. This can often be a favorable option for business owners who want to significantly improve the tax impact of the sale of their business. Consider:

  • How should you structure your ESOP to create the most favorable tax outcome for you, as well as a positive outcome for your business and employees?
  • Do you have long-term valuable employees? If you do not, and have a high rate of turnover, an ESOP will not work well.
  • What are the future prospects for your company? Your company needs to have a realistically viable future based on your current financial position (which should be low debt, good cash flow) and favorable long-term market conditions.

FRIENDLY SALE

You may choose to sell the business to a person(s) who is already involved in the business. It may be an employee, customer, friend, or family member. Often, in a friendly sale, the business owner finances the sale over a period of time. A friendly sale can also mean you are passing the business to your heirs but often still taking an income from it during your retirement. Consider:

  • As always, what are the tax implications? You’ll need to structure the sale so that it and the future income (if any) have a minimal tax impact.
  • Is the buyer qualified (and motivated) to successfully manage the business?
  • Consider the impact on your relationship with the buyer if the business has issues or fails in the future. Are you willing to take that risk?
  • Will you be able to sell with terms that will allow you to achieve your financial goals (i.e. will you be too nice to the buyer and put yourself at a disadvantage)?

DRAIN IT

You may simply choose to start taking as much cash out of the business as possible until you are ready to retire, then sell at a lesser value or let it die. Consider:

  • Taxes, taxes, once again. How will you take the cash out in order to minimize the tax impact? Is this the best option for you, considering the tax implications?
  • Will you be able to get enough, and save enough cash, to retire comfortably?
  • Are you willing to sacrifice the value of the business by taking cash out rather than growing the business?
  • How does this impact your employees, both now and in the future?

DISSOLVE THE BUSINESS

You may choose to simply liquidate the business by selling it in pieces when you’re ready to exit. Consider:

  • Yes…taxes, again.
  • Are you so valuable to the business that it is unlikely to be viable without you? Typically, dissolving the business is only the best option if this is true. If the business won’t be successful without you, who would buy it?
  • What are the assets of your business worth? Is it enough?

 

All exit strategy options have their pros and cons and require careful analysis. It is absolutely essential that you consider all relevant factors when making your decision and seek professional advice from legal and financial advisors. Your analysis should begin early—many years before you plan to exit—so you can create a strategic plan that best achieves your exit goals.

So what is your exit strategy? PolymerOhio Manufacturing Solutions partners with FocusCFO, a company that can help you figure that out. For more information, call us at (614) 776-5265 or fill out this contact form.

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Jeff Lacy

Partner / Area President at FocusCFO
Jeff Lacy is a successful entrepreneur and business owner who has proven success at starting and growing a business from the ground up and then eventually selling his company. With more than 30 years in business development, Jeff is keenly aware of what areas of a business need work and how to fix them. He understands the key drivers of profitability and helps small- and medium-sized enterprises (SMEs) in Central Ohio effectively improve, enhance or implement those drivers. In his current role as a Partner and Area President of FocusCFO, Jeff and his team empower SMEs through sound financial management, forward thinking insights & tools, and proactive financial strategies, enabling them to improve their internal cash flows, reduce their business risks and increase the value of their businesses.
Jeff Lacy

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