Exit Strategies to Consider

Exit Strategies to Consider

When planning your exit strategy, you must consider how the owner wishes to transfer control of the business. The seven business transfer methods to consider are:

  • Employees
  • Charitable trusts
  • Family
  • Co-owners
  • Outside buyers (followed by retirement of the current owner)
  • Outside buyers (followed by the current owner working in the business for a period of time)
  • Going public
Each transfer method corresponds to a specific value. In addition, each alternative has significant implications in terms of staff development and retention, quality of financial reporting and accounting practices, branding and marketing activities, compensation plans, income tax considerations, and capital investment requirements. Additionally, some types of exit strategies generally result in higher proceeds to the seller (for example strategic buyers or going public). You can make your business more attractive to potential buyers through strong financial performance and sales trends, clean contracts and legal compliance, branding the company and not the owner, and running the business with the same professionalism as a Fortune 500 company, and with the same enthusiasm as a new owner. However, these efforts must be made in advance – buyers buy for the future, but they pay for the past.
Also remember that different types of buyers have very different criteria. For example, if the business is attractive to a public company, you will need three years of audited financial statements. It is not prudent to wait until you have a public company suitor to get your books audited. If you have developed great technology, but have not adequately trained a support organization around it, a strategic buyer may pass on your business because the ability to integrate into the organization is missing. If you are a potential target for a financial buyer, coverage in strategic markets may not be as important as the financial returns from your operations.
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