Exit strategy should be planned, keeping in mind the long and short-term objectives of the company owner. It should be considered and developed right from the beginning, once you have finalized with your long-term and short-term goals. Keeping the expectations according to your business, and planning the strategy will be helpful. Before you plan the exit strategy, it is required to concentrate on strategic planning, organizational planning, and financial planning of the company. The three important questions which you must address to yourself about your business before writing the plan are: to whom, by when, and for how much.
Writing the Exit Strategy
Choose the Best Exit Strategy for your Business
- Selling the business to a family member.
- Selling the business to other company, which is usually larger than yours (acquisition and merger).
- Selling the business to Employee Stock Ownership Plan (ESOP), in which the stocks of the company is sold to the employees of the company itself.
- Initial Public offering (IPO) is a risky strategy in which the stocks of the company are sold to the public. The investors need to take a risk because the traders get in (buy stocks) and out (sell stocks) and may cause a financial swing.
Write Down the Questionnaire Document
- How much investable assets should I have in my account?
- What would be the tax impact on the amount that I would receive after I quit?
- What are the legal agreements that I should sign before I complete the disposal?
- Does my business have the required opportunities and value from the view of the buyer?
- How can I clear my debts, successfully?
Financing your Business
Choosing the source of capital is very important, as it will directly influence your decision to exit. The objective of choosing your financing is not only about increasing the funds, but it also concerns the cost of both money and relationships, if you are borrowing the money from your family or friends.
Dealing with the Taxing and Other Legal Issues
Discuss the legal and tax related issues with an experienced corporate attorney and other business accounting professionals. Some of the legal and tax issues that you must discuss with your advisors are listed below:
- Liability of Owners, officers and directors
- State and federal security laws
- Rights of minority owners
- Cost of transfer of ownership
- Buy-sell agreements with shareholders and partners
- Capital gains upon transfer or sale of the business
- Corporate and personal taxes
- Properties owned
- Reasonable compensation limits
- Retirement plans
- Income tax
- Capital Gains Tax (CGT) tax
Actions that Should be Implemented Before Exiting
Begin the planning and the implementations, once you have set the timeline. Implement the following actions before finalizing the agreements and the complete disposal.
- Train the new managers.
- Start your debt reduction program.
- Update your business plan.
- Dispose the loss-making subsidiaries and surplus machinery.
- Approach venture capital backing for MBO (Management Buyouts).
- Discuss the propositions with the concerned bank management.
- Appoint lead adviser.
- Conduct environmental audit.
- Reduce the stock levels of your company.
- Review personal financial positions.
- Undertake mock due diligence.
- Most importantly, plan the activities to get engaged after your exit from the business.
Planning out your strategy at the last minute will never be helpful, because, all the factors required for your successful exit will not fall in line. Also, finding out a buyer in a short period and disposing the assets quickly will not fetch you the desired profits. So, planning ahead is necessary.