Business Exit Strategy - PDF by irc17107


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									                                                                                                pricing and contracts should be uniform
     Planning A                                  Set Clear Objectives                           and easily understood.
                                                                                                           Make sure that the employees
    Business “Exit                               Think through the process and what you         you have in place are those that will work
                                                 want to get out of it. For example:            through an ownership transition and will
      Strategy”                                              Are you willing to accept seller   provide the buyer with a seamless transfer.
                                                 financing as part of the deal? If so, what
      James M. Harley, CBI                       are your ideal terms and conditions?           Look for “windows of opportunity”
      The Business Exchange                                  Do you want to “cut the cord”
                                                 upon sale or would you be willing to           A terrific year is not only good for you at
We’ve all heard the adage “buy low and           provide some transitional management           present – it can provide the “window of
sell high.” It’s true for stocks, bonds, and     and/or consulting for the new owner?           opportunity” to sell your business at its
real estate. It’s good advice for anything                   Do you have a definitive           highest possible price. As most sales are
you value and count on to increase your          “bottom line” that you need from the sale?     arranged as a multiple of cash flow, such a
wealth – including you business. Too             What will you need and/or want to put in       sale at the peak of business will result in
often, business owners postpone thinking of      your pocket at closing?                        the highest possible sales price. Any
their exit strategy until illness, retirement,               Is your main objective to see      abnormal or non-reoccurring sales “spikes”
divorce, or other change in their personal       that the business continues and key            will need to be disclosed to the seller, but a
status requires them to focus on the             employees retained?                            growing income stream is a good story to
inevitable sale. By that time, personal                      Do you know what your              sell.
commitment to the business may be waning         company is worth? Have an economic
and sales may be slumping. Too late for a        valuation of your business performed by an     In the same vein, keep in tune with your
sale to recoup the value the owner may           independent expert. You want to dispel         industry and your competitors.
have created.                                    any unrealistic expectations you might         Oftentimes, a growing competitor looks for
                                                 have as to its worth and acceptance in the     strategic acquisition opportunities in lieu of
Consider two examples.                           marketplace.                                   starting up a new branch in your area.
                                                             Interview and/or hire a good       Your business could easily be someone’s
Say you are the owner of a plant making          business intermediary to help plan and         expansion vehicle. If you think that may
widgets. It provides your family a               handle the sale. He can help you place         be the case, you need to make yourself
comfortable living but the cash flow is          your business in its most favorable light      known.
driven by investments in the physical plant      and to take over direct sales activities at
and other fixed assets that have been            the appropriate time. You need to have         Getting the deal done
financed throughout the years. Should -          someone advertise the business discreetly
heaven forbid - something happen to you          and pre-qualify all potential buyers. A        Depth of Management - If you are a
unexpectedly, your family that had been          higher price will result if you keep your      “one man show,” you won’t get the
dependent on this income stream would be         “head down” and stick to the details of the    kind of value you want. You have to
faced with an uncertain future with possibly     business. You need to keep that cash flow
                                                                                                demonstrate to a potential buyer that
a heavy debt load. The resulting “fire sale”     coming as a growing or stable cash flow
may not ever replace the income derived          serves to strengthen your potential for a      “this company is not dependent on
from your continued operations.                  successful sale.                               me.”
                                                                                                Deal Structure – Generally speaking,
The same analogy – but reversed – could be       Only you can answer these and other sales-     the biggest price may not be an all
true if you were the owner of a dot com          related questions. Form your answers and       cash deal. If you are prepared to take a
company with few physical assets. Your           take action before even thinking of a sale.    note, work out a consulting
brain and your abilities are the “worth” of                                                     arrangement, accept an on-going
your company. With few physical assets           Tax Considerations                             royalty, or some other financing
other than intellectual property, the owner’s
sudden absence could not only dry-up any                                                        method, you may wind up with a more
                                                 Both you and your potential buyer will
income stream, but leave few, if any, assets     have a silent partner in the transaction –     lucrative deal in the long run.
to sell.                                         the Internal Revenue Service. You will
                                                 need some legal and financial “hired guns”     It’s never easy, but it can be done.
Needless to say, it’s best to sell while your    to help you protect your investment and        The key is to plan ahead for any
business is at a peak, not to wait for an        develop solutions of benefit to both sides.    eventuality and to review your
uncertain and possibly unkind future. If a                                                      business as an outsider unfamiliar with
sale is not in your immediate plans, it at       Curb Appeal                                    your business and its individual
least makes sense to begin to plan for the
process so you’ll be ready if the need arises.                                                  characteristics.
                                                 Just as you would “spruce up” your house
                                                 before putting it on the market, you need to
Plan for an exit                                 attend to the physical, financial, and
                                                 managerial “curb appeal” of your
Start early, at a minimum, 1 to 2 years out      business. Someone coming in with a
and have a goal in mind. Clean up your           critical “buyer’s eye” needs to see a tight
books so you can give a potential buyer a        ship and a well-oiled operation. The more
good picture of what you business is worth.      organization you can demonstrate, the
Put yourself in a potential buyer’s shoes        greater your credibility and the chance for
and take a hard look at your business.           a successful sale and transfer.
Would you buy it? Is it attractively
packaged and in a condition to sell?             Action steps:
                                                            Document operating policies
                                                                                                The author is a graduate of Bucknell
Here’s what to look for and some action          and procedures. Actions you take for               University and earned masters
steps to take if your business does not          granted may be totally new to the buyer.       degrees from Cornell University and
measure up to expectations.                      Document everything!                             American University Jim can be
                                                            Get rid of any “brother-in-law”     reached at 859-806-3352 or by email
                                                 deals or contracts that you might. All         at

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