Planning an Exit Strategy
By Dennis Zink
Jun 3, 2019
This is a true story of a recent walk coordinated by Manatee County Neighborhood Services in Southwest Florida, in the Southwest Improvement District, or SWTIF.
The goal of this event was to connect small-business with local and county resources. If business owners weren’t already aware, they now know more about the local resource partners participating in the walk, which included SCORE Manasota, the Manatee Chamber of Commerce, the Gulf Coast Latin Chamber of Commerce and Suncoast Community Capital. Signed Certificates of Appreciation were provided by the neighborhood services director and the economic development manager. These certificates were given to 50 businesses in recognition of Manatee County Small Business Day.
The walk was a great success, and the local business owners were pleased with the attention they received. They are now better informed about the resources available from the county and aforementioned partners. Several business owners mentioned inheriting their business from their family or plans to pass the business on to their children.
It was obvious that these as well as most business owners are unaware of How to Plan an Exit Strategy for their Business.
Most business owners lack a business plan, a strategic plan and an exit strategy. This is not unusual. Many small-business clients come to SCORE Manasota for help creating and developing their business and strategic plans. Rarely, if ever, is an “exit strategy” discussed.
I gave a small-business presentation at the Manatee Chamber of Commerce on the importance of having an exit strategy for your business. My talk was titled, “How to Plan an Exit Strategy for your Business” for transition & future growth.
According to Norm Silverstein, former business broker and SCORE certified mentor, “Sooner or later, every business owner will confront the question of what to do with their business? Do they want to sell their business, have their children run the business, have the business managed by an employee or another individual, or close the business?”
A successful company is often the largest asset that a business owner has. Frequently, the business value is greater than their home. A formal exit strategy is needed by all businesses.
“A business owner should know his exit strategy before he opens his business,” advises Norm Silverstein. With that in mind, I created an Exit Strategy Canvas TM (ESC, like an escape key on your computer keyboard), which helps make ‘Exiting’ a business a more manageable decision. This ESC strategy takes into consideration the many possibilities of business disposition including dissolving partnerships, buy-sell agreements, key person insurance, real estate and other variables. The ESC forces the business owner to think through options, which of course are subject to change. It covers short and long terms goals, protection of assets, age of exit, tax consequences and legal issues.
Sobering statistics: what the big boys do or don’t do: “Almost half of all companies with revenue greater than $500 million have no meaningful CEO succession plan” — Harvard Business Review
“Even those that have plans aren’t happy with them” — National Association of Corporate Directors n ”…only 20 percent of responding HR executives were satisfied with their top management succession processes” — The Corporate Leadership Council “Two out of every five new CEO’s fail in the first 18 months” — Booz Allen Hamilton
CEO’s are not only being replaced, they are being replaced badly.
Here are six strategies for exiting your business:
Strategy 1, “We got to get out of this place.” You hate your business and have no successors. Perhaps you are losing money and feeding your life savings into the business. The good news: shutting down the business may be the quickest way out: the bad news, it is certainly not the most profitable way to dispose of your business.
Strategy 2, Sell to a third party. The good news: this may provide the best return to the owner; the bad news, this strategy may take the longest to implement.
Strategy 3, Sell to your business partner(s). The good news: they are familiar with the business. The bad news, they are familiar with the business.
Strategy 4, Sell to a competitor. The good news: they are familiar with your industry. This may offer economies of scale to a buyer. The bad news: if the deal isn’t consummated, you just opened your kimono.
Strategy 5, Sell to your employees. Is there is a financial capability to make this transition happen? Is there a strong first or second person in charge now?
Strategy 6, Sell to a family member. Does your family really want to be in this business? Are they in it now? Is there more than one person involved? Are you planning to stay on? Do you need to receive money? Lump sum? Ongoing payout? Remember what they say about the best-laid plans.
Other considerations: Depending upon the strategy that best suits your business, you may need to come up with a purchase price and a presentation package. You will need to provide accurate and historical financials and tax returns, and also recast the numbers to show your true profit and owner benefits. You should have written policy and procedure and employee manuals.
In addition, you should maintain confidentiality less you risk a drove of employee departures.
If you are interested in receiving my “Exit Strategy Canvas,” or care to comment, please email me and I will send you the finished form. [email protected]