insights

Nine Options for Exit/Succession/Transition… Plan for Your Own Independence Day!

By: | September 3rd, 2014

 
Here are nine ways to transition out of a business. This is a just a brief summary to get you thinking! Within each there are many potential paths and tools to get there. There are also serious considerations to take into account.
 
1. Sell to 3rd party: An investor or someone looking for a business to run and grow.
 
2. Sell to Family: This can be an ideal option under the right circumstances. It can be extremely rewarding or the most complex and personally challenging!
 
3. Sell to Employees: A great way to transition for some. If the owner would like to make sure the employees keep their jobs and that the business lives on, selling internally can be a great way to ensure a smooth transition for staff and customers.
 
4. New Employee/Acquirer: A variation on selling to existing employees – look for someone to bring in, teach the business to and agree on a sale over time, based on various milestones.
 
5. Retain Ownership: Sell the majority but maintain an income stream by retaining a minority ownership. This is different than the typical agreement to have the seller stay on for a period of time to help in transition (internal operations and to transition client relationships). This may be best in a transition to family. Warning – depending on the family and relationships, it might be best for the seller not to be involved in the day-to-day after transition. Stay away, relax and cash your checks!  
 
6. Shut the doors – liquidate: Sometimes this is the only option, perhaps because of a crisis or lack of planning. Often this is the sole owner/sole practitioner who did not feel they would have a business that anyone would buy. Appropriate planning and focus on building value probably did not happen. If it had, there may very well have been a sale and a check to help fund retirement.  
 
7. Strategic sale: Sell to another business. This can be a valuable way to get out and maximize the sale price. A competitor might pay more than a 3rd party because they may be able to reduce the cost of current when merging the two businesses. For example, we do not need two buildings.
 
8. The Two-Step: Merge, then Sell: Consider merging with a competitor as a first step. The two new partners can then grow the combined entity with an upfront plan for the one to sell out to the other at a certain time and under certain conditions. This can be a perfect option with enough time and if an outright sale is proving to be difficult. And, with some effort, the interim growth may provide a bigger payout than a quick sale of the original business. 
 
9. Die – no really!: If the business owner(s) loves the business and is not one to lie on a beach for 30 years, working forever is perfectly acceptable as an exit/succession strategy. BUT, appropriate planning is still necessary in order to lay out what happens when he/she/they arrive at their “final exit” – so the heirs are not left with an expensive mess to clean up.
 
 
A few thoughts in summary:
 
  –  Improvement in day-to-day operations, sales and infrastructure is a key component of maximizing value. And honing in on a likely exit plan will help make those day-to-day decisions more meaningful when they directly support the long-term goal.
 
  –  There are many considerations: the pros, cons, risks and expensive pitfalls are virtually endless for any of the nine options above. The personal, family, financial, legal and tax implications when selling what is most often the owner’s biggest asset are incredibly important to a successful transition.
 
  –  It can seem complex, confusing and difficult, because it is! Deciding which way to exit requires thought, intentional planning and outside expertise to guide the business owner(s). A solid plan and the right advisors can help guide you.  
 
  –  This kind of transition does not happen overnight. The longer the planning is put off, the more difficult the transition will be – and most likely the sale price will not be what it could have been.
 

“You have to decide what your highest priorities are and have the courage—pleasantly, smilingly, non-apologetically—to say ‘no’ to other things. And the way to do that is by having a bigger ‘yes’ burning inside.” ~ Stephen Covey

 

 

David Shavzin, CMC 
678-795-1750