The 3 Exit Strategy Decisions that Can Cost You Millions

Selling their business to a 3rd party is the most common exit strategy chosen by a privately held business owner.

We are currently in the midst of a mass transition of business ownership. Some are exiting because they are tired of the lack of control – who would have ever guessed that business could be so disrupted by decisions made in response to a pandemic?

We also have a wave of baby boomers retiring, which means they are exiting their businesses in droves.

According to the Exit Planning Institute a paltry 20-30% will be successful in executing their sales transaction.  “Whoa!” you say. Yep, 70-80% will fail, and that statistic is shocking.

So, how can you be part of the success group?

These are the three big decisions business owners need to get right when selling their business:

1. When do I exit?

Successful business owners sell a business when two things are true: (1) They have built a business with transferable value that will attract buyers and (2) The market is ripe, meaning that economic conditions are favorable and investors are active.

Successful transactions involve business owners who prepare for their exit well in advance, understand that market timing matters, and are ready to execute when the conditions are right.

They are proactive and have their business valued throughout the maturation of the business. An accurate business valuation guides a business owner as they make critical decisions in building transferable value as the business grows which will drive price, terms, and a deal that will ultimately close. The valuation will also serve as a guide as an owner assesses whether a liquidity event will meet their financial goals. Sometimes there is a disparity between the amount buyers are willing to pay and what a seller needs to maintain their lifestyle. An assessment of the business value and all personal assets will lead the owner to establish when they, and the business, are ready to go to market.

Then it becomes about market timing and the level of buyer activity in your industry.  Low interest rates and the availability of capital increases merger and acquisition activity. A buyer is always looking for a return on investment and will actively pursue well-positioned businesses in which they can invest capital and expertise to grow value. If you are in an expanding industry, your business is well-positioned to support future growth, and economic conditions are favorable to buyers then the timing is right.

2. What is the sales process?

Business owners who have successfully sold their company know that the process is complex and requires a comprehensive strategy.  It isn’t as simple as selling a house where price is based solely on comparable houses sold, a buyer sources their deal through an MLS, an attorney closes the deal, and you use the funds to buy another house. There are many business, personal, and financial considerations that need to be addressed in creating an exit plan that will satisfy the owner’s goals.

The sales process includes:

  • Understanding the value and the impact a sale will have on your financial future.
  • Shoring up any weaknesses in the business that will be perceived as risk by the buyer.
  • Identifying and marketing the business to qualified buyers who will meet your business objectives.
  • Navigating through buyer management meetings and negotiating the price, terms, and structure of your deal.
  • Understanding payment terms and strategies to minimize the tax impact.
  • Ensuring you are legally protected post- transaction.
  • Transitioning the company while maintaining your corporate culture.  
  • Reviewing and revising your estate plan.
  • Executing a well-strategized wealth management plan for the proceeds.
  • Designing and implementing a post-ownership plan that will keep you engaged and fulfilled.

Nope we aren’t selling a house. Business owners who successfully complete their deal understand how complex selling a business is and that while they are experts in their field, selling a business is beyond their competence. This leads to the next decision they make that ensures a positive outcome.

3. Who will guide me through a transaction?

Successful exits require a team of experts.

We are in an active M&A market and buyers are attempting to source deals directly with sellers. Running your deal is fraught with pitfalls. We hear the stories from our clients who, prior to working with us, attempted to go it alone only to lose precious time and money.

It is critical that you have a team that will accurately value your business so that you don’t accept a price that results in money being left on the table and a deal team that will negotiate with multiple buyers and manage the entire process including due diligence to a successful close. You will need a transactional CPA who will minimize the tax impact on your deal and an attorney that will protect you through post-closing. And, at the end you will need an estate plan review and a wealth manager to grow and protect your wealth for future generations.

We at Legacy Partners take the stress of the process off your shoulders. You run the business and we’ll take the lead. We collaborate with your existing advisors and bring in our merger and acquisition experts to get your deal done and meet your business, financial and personal goals.

Exit with Ease.

Keep reading:

An Exit Strategy is Good Business Strategy – Why You Need a Plan Today!

An exit plan aligns an owner’s business, financial, and personal goals and is a living document, so it is continuously revised as the business scales. It serves as a guide for the business owner as they prioritize critical decisions to scale the company. This ensures that as the company grows transferable value is increased and the business will attract investors when they go to market.

Read More »
who will be my buyer?

Who Will Be My Buyer?

There are three types of third party business buyers – financial, strategic and individual – and each brings something different to the table. Which is right for you?

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Is It Time to Sell Your Business?

Don’t let fear render you complacent when developing your exit strategy! It’s important to understand the economic indicators driving the M&A cycle. Economics aside, there are other considerations, such as whether your business is positioned to attract a buyer or if you’re in the optimal stage of development to go to market.

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