Exit Planning- For When You Want To Keep The Company In The Family
What is Exit Planning?
Business exit planning is nothing but gaining freedom from the business. For example, whether you intend to transfer your business to your children, sell it to key employees, sell it to a competitor, or just wind it down, having a plan in advance improves your opportunity for success. When the business owner fails to plan, even the most successful business can become a liability to the owner or his or her heirs.
There is an essential criterion when it comes to selling a business is to be fully prepared. Get all the documentation in order, secure a business valuation, find the right buyer, and then let them do their due diligence.
Percolating Key Issues:
Ø Business valuations
Ø Buy-sell agreements
Ø Grooming successors
Ø Determine your retirement income requirements and objectives.
Ø Golden handcuffs for key employees
Ø Initiating stock programmes for key executives
Ø Enforcing business growth strategies and cutting expenses
Ø Delegating owner responsibilities to management and employees
Ø Creating audited financial statements for the company’s prior years
Ø Getting pre-qualified for financing
Ø Consultation with tax advisors on how to structure the transaction and potential tax exposure
Ø Structuring buyouts from successors or partners
Ø Identifying the potential universe of buyers
Advantages of an Exit Strategy:
Ø Monetize value that is locked inside the company.
Ø Gain personal freedom from the day-to-day obligations of running a business.
Ø Share the responsibility and rewards of ownership with key employees or family members.
Ø Reduce gift, estate, and income taxes associated with any ownership transfer.
Ø Maintain family harmony.
Ø Preserve a legacy via business continuity.
Second-tier strategy:
1. COMBINE MERGE: A very good option for exiting a business is to merge with or get acquired by another company. Mergers of companies with complementary capabilities bring economies of scale to the newly formed business.
2. SELLING TO A FRIENDLY BUYER: Rather than selling to an unknown competitor, it may make more sense to pass the business on to friends, family, employees, or managers you know.
3. LIQUIDATION: liquidation is the least rewarding exit option in financial terms, as it nets you the market value of your company’s assets and nothing more.
Exit planning during a Pandemic:
The pandemic caused people to think differently about their lives, and it has acted as a catalyst for many business owners to think about transition and succession plans. In plenty of cases, many people’s businesses were eroded, leading to a surge in exits.
Unforeseeable 5Ds in the family business:
- Death
- Disability
- Divorce
- Distress
- Disagreement
Family business owners must take strategic steps towards mitigating the potential impacts of the 5Ds by preparing a clear view.
Conclusion:
The exit plan includes both pros and cons. Well, it depends upon the business owner’s strategic thinking.
Pros: By exiting intelligently, he/she can maximise financial return for shareholders and investors and leave the venture in the hands of people they trust, giving them the financial means and the peace of mind to move onto the next phase of life.
Cons: Sometimes exit plans offer the lowest ROIs. Well, it also results in people being out of jobs (affecting the job security of employees).
