Exit Strategy Consulting
Family Business Exit Strategy
As an entrepreneur, exit planning is crucial to your family’s financial future. If you are the owner of a family business, the stakes and emotions run even higher. Your exit is the final act that determines your legacy and the foundation for the next chapter of your life.
When Do You Need an Exit Strategy?
If you’re trying to determine whether or not you need an exit strategy – you do. An exit strategy is a planned approach to transition ownership or finalizing a situation to either maximize benefit or minimize damage. For business owners, this is in reference to a strategic plan on how to sell and turn over ownership to investors. There’s a school of thought in exit strategy consulting shared by many consultants that says owners should have the exit in mind from the start and build the business to sell it regardless of their intentions down the line. With a successful exit strategy in place, business owners can also make a sizable profit from the sale of the business, minimize stress, and be prepared for whatever comes next.
In exit strategy consulting, the important word to remember is readiness. While all exit opportunities are unique, all exits also require three key components of readiness: owner readiness, business readiness, and market readiness. When considering your exit strategy, ask yourself “what’s my WIN?”. Your win should include your personal and business goals and define what a successful exit looks like for you. Read briefly about each component of our Exit Engineering process to better understand true exit readiness so our consultants can help evaluate these potential exit paths through the lens of what matters most to you and which route will get you to your WIN.
The word might have negative connotations of “failure”, but liquidation is a completely viable exit strategy for businesses that might not be easily sold. It’s not a failure at all, but rather, a simple and successful exit from the business that gave you freedom, flexibility, opportunities, experience, income, and relationships. Liquidation means selling off the business’ assets, including real estate, paying any final debts and taxes, closing the books and accounts, and walking away with the remaining funds. Liquidation is much less complex than a sale transaction and eliminates any future liability by taking buyers and new owners out of the picture.
If you don’t necessarily want to sell your business but no longer want the responsibility of running it, consider turning the business into an annuity. You can do so by hiring someone to take the role of CEO. Our team also recommends appointing a board of directors to whom the CEO reports. You’re then relieved from the day-to-day operations while still receiving a monthly income. It’s a creative solution enabling you to hold on to the business, be involved in some (or none!) of the decisions, and steer your legacy without forcing an unfavorable sale.
INSIDE SALE – FAMILY MEMBER(S)
An inside sale is a sale to someone who is familiar with the business. In family businesses, transactions often happen between generations of family members. But keep in mind that sharing a last name doesn’t automatically make someone the top qualified buyer and future owner for the family business. In both the decision and the transition, it’s recommended to work with a family business exit strategy and management consulting firm like Exit Consulting Group to look out for the business’ best interests from an objective viewpoint.
INSIDE SALE – KEY EMPLOYEE(S)
When you’ve put in the time and sacrifice to build a stable business and career, the reality of exiting can bring a world of emotions. An inside sale to one or more key employees can help make your exit experience feel less final and more like a passing of the torch to the person or people who have been working for you for years or decades. Inside sales, whether to family members or key employees, take many shapes and forms, including management buyouts, Stock Appreciation Rights (SAR), Employee Stock Option Plans (ESOPs), and other strategies you can discuss with your consultant.
OUTSIDE SALE – STRATEGIC BUYER
Suppose you have a salable business and do not see a candidate for an inside sale in your family or company. In that case, our team can help search for an outside buyer, either a person or company who sees value and opportunity in purchasing your business. There are many different types of buyers to recognize, each with different motivators. Strategic buyers, for example, value a business based on the return they expect from an acquisition.
Strategic buyers typically make very attractive offers, with the sale price often contingent on the success of the business after the sale. These buyers are willing to pay more because they believe it is more efficient and cost-effective to take over an existing company than to build a new business from the ground up.
OUTSIDE SALE – FINANCIAL BUYER
A financial buyer is a sophisticated, professional buyer such as a financial institution, insurance company, or private equity firm. Generally, financial buyers have large pools of money. Private equity firms see companies solely and coldly as assets, deciding to buy or not buy a business based on the rate of return the company may generate, similar to hedge funds. Financial buyers usually focus on companies with at least $10 million in revenue and $1 million in EBITDA. Financial buyers like private equity firms want to see a strong management team in place, solid financials, growing revenue, and a profit.
Why Are Exit Strategies and Exit Planning Important?
Planning your exit is a delicate balance of time, money, and energy. How much time do you want, how much money do you need, and how much energy do you have? What is the order of priority among the three? For example, if you feel burnt out in your career, your energy becomes the main factor, so you might consider taking less money to sell the business to new owners sooner. If you are still relatively happy working and running the business, you might be inclined to put more time and energy into growing it for a larger sale price later on.
When you finally make the decision to leave, you’ll likely wonder how to reap the value of the business and how to ensure the company stays afloat after you’re gone. Without a proper exit plan in place, you won’t have a clear path to obtaining value from the company and reaching your own financial goals. Not only that, but the company is also left with no direction, leaving jobs, customers, and the business as a whole on the line. If you want to create financial freedom for yourself and establish a legacy, you will need an exit strategy. The sooner you start thinking about your WIN, the better.
EXPERIENCE YOU CAN TRUST.
You’ve spent your life building your business. You’ve overcome many obstacles to make it to where you are today – but you’re about to face the biggest one yet. Leaving your business and navigating a smooth transition is easier said than done, and few owners truly understand the complexity of leaving their business. Although you may feel you know your business best, that’s exactly what makes it so difficult to leave – and that’s where we come in. At Exit Consulting Group, we specialize in transitions. We get down to the nitty-gritty and utilize an entire toolbox of options to engineer the best path for you.
Our exit consulting experience combined with our top-of-the-line consultants work to help you enter the next chapter of your life with ease. What’s your WIN?