Developing an Exit Strategy
If we were in an almost perfect world, all business owners would consider the fact that at some point in the future, they would need an exit strategy for their business. If we were in a perfect world, a business owner would have that strategy in place, and included as part of their initial business plan. Now being realistic, and in a far less than perfect world, even if a business owner began developing an exit strategy at some time prior to a "must sell" situation, the business owner would benefit greatly. Benefiting both by minimizing the obstacles involved in a smooth transfer of the business, and also in the financial aspects associated with the transfer.A proper exit strategy cannot be developed by the business owner without the help of his or her professional team. The team consists of at least the following three professionals:
1) Attorney - The first member of an exit strategy team is usually the attorney. That attorney may have been involved with the business owner since the inception of the business, or chosen specifically for assisting with the exit strategy. The attorney will be instrumental in the preparation of any buy/sell agreements, employment contracts, employee handbooks, etc. necessary for the normal operation of the company, and might have been involved, along with the accountant, in determining the initial legal and tax structure of the company. The attorney should also be involved with all estate and tax planning for the business owner. With regard to the actual business transfer, the attorney will be involved with the sales contract, closing documents, possible real estate and estate planning issues, and most importantly in keeping the transfer process moving smoothly. It is best to retain an attorney whose firm has the resources to address all of these items.
2) Accountant - The accountant must make sure that all financial information of the company is reliable and accurate. Many a business sale is killed during the due diligence period when the financial information of the seller is found to be inaccurate. The accountant should also be consulted on the tax consequences of any transfer. All tax consequences should be addressed before any contract is executed.
3) Financial Advisor - The financial advisor must ascertain if the anticipated proceeds from the business transfer will allow the business owner to reach the desired financial goals.
Other professionals may also be a part of the team. For example, a business broker would be utilized if the business was going to be marketed to outside parties, and a business appraiser utilized if the accountant on the team was not qualified to perform that service.
The development of an exit strategy is a process that takes time. If it is done correctly, and the necessary resources are given to the process, any professional fees expended will be more than offset by benefit to the owner, both financially and in peace of mind when the business is eventually transferred. If an adequate investment of time and resources is not made, the business owner will suffer in the long run.
Successful business owners must understand that while they are experts in running their own business, their success in that business, no matter how great, does not qualify them to developing a proper exit strategy. To transfer their business in the most beneficial way, there are many considerations that must be taken into account.
A business owner must first and foremost make sure that the exit strategy team is aware of his or her needs and desires, whether financial or other. Without doing so will surely result in an exit strategy that does meet those needs. Business owners who have not sat down with at least one of their professional advisors to initiate their exit strategy process should do so as soon as possible. If a business owner already has a business exit strategy in place, he or she should till sit down periodically with his or her professional advisors to determine if any modifications to that strategy need to be made. Remember, things such as tax laws, owner's needs and other issues constantly change, and their effect could be significant.
Sherm Ershowsky
Ph: (954) 704-2614
E-mail: Sershowsky@murphybusiness.com |
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