Small Business Exit Strategy

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Kison Patel is the founder and CEO of a Chicago-based due diligence management software company that uses agile principles to modernize and modernize the financial industry. As a former M&A advisor with more than a decade of experience, Kison developed several deep-seated, industry-wide structural problems and inefficiencies.

Small Business Exit Strategy

A survey of business owners by the Exit Planning Institute shows that 2 out of 10 companies listed for sale initially close a transaction, and of those, close to half only after making significant concessions from the seller. .

Preparing Your Small Business Exit Strategy

Business owners need to think about exit planning before looking for potential buyers. The tools provided by can be a valuable asset to any business owner trying to develop an exit strategy.

By working with a team of professional advisors, accountants, lawyers and brokers, you can ensure that the right documents are in place for the company’s exit when the time comes.

In this article we will talk about creating a business exit plan and how to create one for your business.

A business exit strategy describes the steps a business owner must take to generate maximum value by selling their business. A well-designed business exit strategy should be flexible enough to allow for contingencies and take into account the fact that business owners do not always decide on their own terms when to exit. By strategizing in advance, owners can ensure that they can minimize costs in the event of an unplanned exit from the business.

Small Banks Used Small Business Lending Fund To Exit Tarp

An investor exit strategy is similar to a business exit strategy. But investors are looking for financial return upon exiting the business, so bequest is never considered as one of the options. An investor will often have a list of potential acquirers in mind, as well as a time frame once their investment will be made. In this type of scenario, there is often an exit multiple in mind (ie multiple of EBITDA or multiple of the initial investment in the business).

Another business exit strategy option is a venture capital exit strategy. As our venture capital article outlines, if a company is venture funded, consider that your investor will have a pre-planned exit. As an early stage company, this is a natural part of taking investment. Typically, with a VC investment, the goal is to exit after five years, either through a sale of the industry or through an IPO where they can liquidate their initial equity investment.

From a purely technical perspective, it is important for shareholders to have a broad overview of what an exit would look like. For example, the image below represents a variety of goals, from financial gain to reducing environmental risks.

Retirement – ​​The biggest reason of all goals is undoubtedly retirement. Business owners will inevitably retire at some point, and it’s best to have an exit strategy in place before they do.

Use Make A Will Month To Plan Your Small Business Exit Strategy

Investment return – A business exit strategy as part of a broader investment strategy – for example, a VC company plans to go public after five years – makes the exit cost part of the initial investment in the company.

Loss Limit – A company’s exit is ultimately a type of real opportunity for a company. If the company is losing money, the best option may be to leave immediately – ‘cut your losses’ on the company.

Force majeure – examples like Covid-19 and Russia’s invasion of Ukraine, sometimes an investor or owner really has no choice: circumstances dictate that they have to leave.

Strategic buyers are usually in the same industry as the company whose owner wants to exit. And in other cases, the buyer may be in a nearby market to sell their products in an existing market, or to expand their products in the market.

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Financial buyers are simply looking for a financial return on their investment in a company, and exits are the primary means of obtaining that return. Examples include venture capital and private equity investors.

This type of exit, more common with startups than mature companies, allows business owners to exit by selling their equity to investors on public stock markets.

An exit through an MBO occurs when the owner sells the business to its current management team, whose knowledge of the business should technically make them the best candidate to get value from an acquisition.

A leveraged buyout occurs when a buyer takes out a loan or debt to buy another company. The buyer also uses a combination of their assets and the assets of the acquired company as collateral. Financial models can be used for many scenarios and simulations when an LBO is an effective choice.

How To Develop An Exit Strategy For Your Small Business

Can be used by a business owner to liquidate if they feel that liquidation would provide cash more quickly, or that the individual assets of the business (ie, property, plant and equipment) were more liquid than the business as a going concern. .

Startups seeking VC investment may include an exit strategy as part of their initial pitch. It is not mandatory. Sometimes it can work when it’s good, for example when a startup founder is well-versed in the industry and has a reliable 5-year forecast.

How have initial IPOs performed in the last 12-18 months? If public markets show enthusiasm for companies like the one being pitched, it makes it easier to show how an exit might happen.

Similar to IPOs, companies can use comparable transactions (industry or private equity sales) to show investors their way out. Competing companies must operate in the same or near the same competitive area.

Dfw Exit Planning

Remember that the goal of the plan is to make the transition to the new business owner as straightforward as possible.

Although the following steps are general, no one knows a business better than its owner, so take the necessary steps to make your business as marketable as possible to potential buyers.

These steps also assume that you, the business owner, have weighed options elsewhere. Personal finances, family situations and other career options are beyond the scope of this article.

Rather, the following points are intended to ensure that a business will be ready to sell as quickly as possible at a reasonable price.

Smooth Transitions: Bank Of The West Report Helps Small And Mid Sized Wholesalers Create An Exit Strategy

It sounds obvious, but a company can quickly lose focus on the goal of diversity to the extent that it becomes “all things to every man.”

This can be helpful in the short term for income streams, but just make sure your business is focused. This will help you find the right buyers when the time comes and be able to communicate what part of the market your company occupies.

However, if you intend to sell your business at short notice, it is best to have clean, well-kept records that go back at least three years.

The less debt a company has on its balance sheet, the more attractive it will be to potential buyers.

Planning Your Exit Strategy For Your Small Business Or Startup

A common theme among small business owners in America is thousands of dollars in credit card debt. This can be a red flag for many buyers and should be paid as soon as possible.

How important are you to day-to-day operations? If your company would lose more than 10 percent of its revenue if you quit, the answer is “very significant.”

If the income is tied to the owner, buyers won’t want to buy the business if the owner leaves right after.

Although it can be a challenge, try to reduce your direct influence on the business, which in turn makes it more marketable.

Exit Strategy: Definition, Types, Business Plan (+template)

Closely related to the point above, make sure your business has a set of standard operating procedures (SOPs), ideally in writing, that will allow any owner to simply guide the business to keep it in working order. By following a set of

Are the current managers capable of handling the company and running it as it is? If you leave the company on vacation and one of your managers calls you several times, the answer to this question may be ‘no’.

They may need more training or you may need different leaders. In any case, having a skilled team in place will be valuable whether you decide to leave your company or not.

A list of buyers should be created and appropriately updated on a regular basis. Ideally, you know their criteria for buying a business, but this is not always practical.

How Do I Develop An Exit Strategy For My Business?

Having a long list of buyers means you can contact them at short notice if needed in the future.

Many owners make the mistake of thinking that a business termination plan means the same thing as a ‘retirement plan’, believing that they can start thinking about collecting one as soon as they turn 55.

This is a mistake. Not because your departure is imminent, but because of it