How to Prepare an Exit Strategy
For a small business owner facing retirement, managing a successful exit is important for the continued well-being of the company and its employees, other shareholders and customers. A well-thought-through plan documented with goals, objectives, strategies, tactics and a time line is valuable for the achievement of the company's long-term objectives.
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Things You'll Need
- All legal documents pertaining to the ownership structure of the current firm
- Recent financial statements from the past two years
- Strategic, management and marketing plans
- Knowledge of exit strategy types
Instructions
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Steps for a Succession Plan
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First, understand the characteristics of each exit strategy option and the pros and cons of each. For example, in an Initial Public Offering (IPO), you sell a portion of your company in the public markets. Typically, you and your team remain in place for several or more years and your company continues to run much like it did in the past. Or, another company may purchase yours via a strategic acquisition and you may or may not be invited to stay. In a management buyout, the next generation of managers buys your company through some combination of debt and equity financing. There are other options such as employee stock ownership plans or mergers. You need to evaluate each in terms of what each option might mean for your future, the future of key managers and employees and the future health of your company.
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Evaluate your own objectives. If you want to continue to have a role in your company after its sale, an IPO may make more sense. An acquisition may place you outside the company you used to own and is attractive if you want to retire and do something else. You also need to evaluate your own liquidity needs. An acquisition often generates an immediate cash payment while other exit strategies do not.
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Evaluate your company's future potential. If the future looks bright for your business, you may want to retain some ownership interest. An IPO will allow you to do this and to disperse your shares to meet your own personal needs sometime in the future. An acquisition greatly reduces your ownership interest and any future payout.
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Choose the exit strategy and develop a clearly written plan. The plan should define why you chose the strategy, outline the pros and the cons of the choice from the point of view of both you, the owner, and all managers and employees. If your company is merging with or being acquired by another company, the plan should include a detailed portrait of the other company. This portrait should include financial reports, marketing materials and management biographies. Include a detailed time line of events leading up to the date when you leave the company.
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Communicate the plan to everyone in your company. Your managers and other employees need to know what their role will be after you leave and whether there is a cash or other incentive coming to them after the sale. Change needs to be managed carefully and the sale of a company is a big change for everyone. The better you communicate, the smoother the transition to new ownership will be.
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Tips & Warnings
If you do not think you can manage the ownership transfer yourself, hire an attorney or finance specialist fluent in the sale of businesses to help you.
Watch the market and its implications for selling your firm. Selling in a down market will yield a lower return.
If you are taking your firm public, consider the impact of Sarbanes-Oxley, the Federal law governing public companies. There are many costly requirements of taking a firm public included in this law. Begin by establishing an independent board, getting an independent audit and upgrading your financial systems to be in compliance. If you meet the Sarbanes-Oxley standards your firm will be more attractive to potential buyers.
References
- Photo Credit exit sign image by robert mobley from Fotolia.com
