Exit planning: Prepare for an out while you’re still in

Running a successful business is time
consuming, leaving you little time to plan what
may seem like distant succession issues. It’s
important, however, to outline an exit plan and
make succession decisions as early as
possible. Evaluating and grooming possible
successors or preparing for an outside sale can
take years. And it’s never too early to make
retirement and estate plans.
Take stock
Before determining where you want to be when
you’re ready to retire, assess where you and your
business are financially today. Prepare a detailed
financial analysis of your business with the help of
a valuation professional. This expert will review
historical data to determine its current value.
Also examine all contracts and agreements to
make sure your business is transferable. Transfer
restrictions, such as professional license
restrictions, government contracts, franchise
agreements, lending agreements, shareholder
agreements or other types of contracts, can slow
down the process significantly.
Transfer or sell?
Next, develop a succession plan that outlines how
your business will be sold or transferred. If you
have business partners, they will most likely be
able to buy your ownership interests according to
the terms of your company’s shareholder or other
agreements.
You might choose to groom a family member to
eventually take the helm. Or consider selling the
business to a key employee or group of employees.
Employee buyers may have several financing
options, including private equity partners, bank loans and Employee Stock Ownership Plans
(ESOPs).
If none of these succession options seem viable —
or attractive — you’ll likely want to sell your
business to an outside party. Competitors or those
in related industries might view your business as a
good expansion vehicle. To protect confidentiality,
you should consider working with an M&A advisor
to identify potential strategic buyers.
At the same time, consider whether the company
would likely generate more proceeds if sold intact
or broken down by segments. Liquidating or
divesting your assets might be your best option if
you have equipment or real estate, or particularly
valuable profit centers, and it seems unlikely you’ll
be able to sell the business outright because of
weak financials or a changing marketplace.

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