A successful M&A transaction starts with good planning…
And as early as possible.
Every business owner’s journey does eventually end. You can choose to prepare and be in control of that ending and increase the chance of successfully selling your business or you can just hope for the best.
Hope is not a strategy.
When it comes to what is most likely your most valuable asset, the best way to achieve your exit goal is to become the master of your plan. Create your Master Exit Plan (MEP) well in advance so that you are following a blueprint as you build the business. Then, with the help of an M&A expert, you can execute your plan when the time is right. Here are four fast facts about strategic exit planning to help you create the perfect ending:
- What is a strategic exit plan?
A strategic exit plan is a long-term strategy for how a business owner will unlock the wealth trapped inside the business, transfer ownership to others, and protect the liquidity harvested for future generations. It is comprehensive and addresses the following key points: integration of an owner’s business, personal, and financial planning, business valuation, optimization to increase the business marketability, execution of the exit plan, and proper estate and wealth planning to protect your legacy.
- When should you create your strategic exit plan?
According to the Exit Planning Institute, 87% of privately held business owners have no formal written exit plan in place yet the largest wave of baby boomer business owners will be transitioning out of their business in the next ten years as they prepare to retire. In an ideal world, an owner would create an exit strategy as soon as they become a business owner. However, the vast majority don’t engage in the process until their exit is imminent. As many as 50% are forced to exit because of an unforeseen event. The earlier the exit is planned, the more successful the exit will be in achieving the owner’s goals, regardless of the circumstance of the exit.
- What are my options for exiting my business?
There are many exit options to consider, such as: a family succession, management or employee buy-out, initial public offering, selling the business to a third party, or liquidation. The most common option that typically offers the highest return on investment to a business owner is a sale to a strategic or financial buyer. There are many variations of this option that can help a business owner meet their goals. For example, if one partner wants to stay and the other wants to go, or an owner is interested in continuing to work in the business but wants to take some chips off the table, the sale can be structured as a recapitalization in which the remaining partner or business owner buys back an equity position at close. This affords the owner or remaining partner the potential for another liquidity event in the future.
- How do I ensure that risks and circumstances won’t derail my exit strategy?
First, concede to the fact that there will be another unpredictable event that will negatively impact business. It is critical that every business owner prepare for a disruption by minimizing known risks and creating contingency plans for a variety of scenarios. Begin by identifying all potential internal threats, such as a lack of management succession, and external threats, such as increased competition or another unprecedented event like COVID. Create a list and rank each threat by level of potential impact, strategize to minimize or eliminate each risk, and then methodically execute your plan of action to de-risk your business now and be prepared to execute contingency plans if required in the future. While creating your exit strategy and planning for unpredictable events may seem daunting, a good M&A advisor can help guide you through creating a Master Exit Plan that will drive value and put you in the driver seat upon execution.
