Posts tagged with: early planning

Insights from The Owner’s Journey

The Owner’s Journey, a newly released study commissioned by US Trust, at the Eugene Lang Entrepreneurship Center at Columbia Business School, assessed and measured experiences and lessons from eight entrepreneurs who successfully sold or transferred their businesses to family members.

This whitepaper explores how founders or their successors created financial value in their businesses and prepared them for ownership change. Below are just a few of the early planning takeaways you can glean from their experience and apply today.

The stories of the entrepreneurs showcased provide rich insight to a wide range of exit options that worked for them:

  • Transferring ownership from father to daughter
  • Transferring ownership from a couple to their children
  • Selling to a strategic buyer
  • Selling a dental practice to a strategic buyer
  • Selling to a financial buyer


Introducing the report, Keith T. Banks, President of US Trust, Bank of America Private Wealth Management stated:

The most successful transitions require entrepreneurs to orchestrate finely tuned exits……Taking the time to initiate the planning process early is often neglected…. Without this planning, ‘business owners are often forced to exit on other people’s terms.’”

Early Planning for a Transfer of Ownership

Two-thirds of business owners who responded to the 2014 US Trust Insights on Wealth and Worth Survey do not have a formal succession plan. And for those who do have plans, many never ‘get around to’ implementing them.

With the greatly increased inventory of small businesses for sale (e.g. businesses listed on ) multiples for smaller businesses have been eroding. Smaller sellers are now lucky to receive only 1-2 times earnings equal to only couple years of the income they have been taking out of the business.

In the middle market, sales were robust in 2014 and are expected to be the same in 2015.

Exit Strategy Options for Owners of Privately Held Companies

For the purposes of this whitepaper, they considered these six exit options:

  1. Liquidation
  2. Bankruptcy
  3. Going Public
  4. Transfer of Ownership to employees management or partners
  5. Transfer ownership to family members
  6. Transfer ownership to financial or strategic buyers


The first two are acknowledged as being unappealing options. The last two are recognized as the most plausible options.


Other Insights from The Owner’s Journey

  • Not all businesses are saleable. Even long-standing, successful businesses will face challenges if they are not been deliberately managed for sale.
  • One family said: You must do the best you can to protect your assets, to protect your family. If nothing is done, one is leaving one’s situation to chance, the government and God.
  • One owner was so passionate about his mission and building the company that he had little thought for anything else. He never pondered the endgame.
  • Before one puts a business up for sale, one should streamline business processes and audit all costs and contracts.
  • Be as firm and detailed as possible in your letter of intent. It is the time to list everything that is important to you … The purchase agreement then easily flows from the letter of intent.
  • Find out how other deals were structured. Know your bottom line position. And don’t be afraid to ask for much more than your advisors recommend.
  • [My favorite] Start working with professionals years before you want to sell. Have a valuation done years before selling. Learn what you can do to make your company more valuable.
  • Unexpected things, both challenging and fortune, will happen. The trick is to be prepared for both.

Tips from experience

These entrepreneurs shared their hard-won advice on numerous topics. Every tip in the table of ‘Tips from experience’ is a golden nugget owners should take to heart. This advice is from the study participants, not advisors. Here are just the categories they cover:

  • Selecting advisors
  • Understanding the real value of your business
  • Selling a company is complex and can take time
  • An owner cannot always count on his/her children as the exit plan
  • When events move quickly


“The unknowability of the future bedevils every decision maker, not just those selling a business…. Planning can sometimes be difficult and time consuming, but it’s the best tool we have. And the earlier it is started, the greater the likelihood of a favorable outcome.”

The last point I want to highlight is not part of the study itself but what the advisors ‘caught’ along the way:

“Our advisors…were hearing a consistent and passionate message that early planning and enhanced education about exit options and the exit process were in great need.”

That’s our mission at This Way Out Group LLC. That need is growing daily. We help owners start planning early to give them greater exit options, choices and control; we prepare them for and guide them through the exit process (it’s not just an event). Call for a free consultation.

Here’s the link to the complete study on the US Trust website.

Smart Exit Strategies Begin With Early Exit Planning

It’s Never Too Early Or Too Late To Plan Your Exit Strategy

Early exit planning is essential for every business. On my radio show, Exit This Way, I open every show with the statement:

“It’s never too early or too late to plan your exit.”

Attorneys, wealth advisors, tax advisors and others all encourage early exit planning for business owners to minimize taxes; and to set up a variety of trusts to help you continue to control your company and its assets, while offering full protection for the business and your estate.

Paradox of Business Ownership

Don Brown, Vice President and Senior Relationship Manager at KeyBank opened his article, Smart exit strategies begin with early planning in the Kitsap Peninsula Business Journal by stating:

“What [most business owners] often fail to see and plan for is the byproduct of that success — that someday they will want or need to move beyond what they’ve worked so hard to build.”

That’s the crux of the paradox of business ownership.

There is a difference between exit planning and succession planning, but they must be addressed together because the decisions and outcome of both are intertwined.

I hear it many times a week: “I’ll walk away from my business when I’m ready to walk away. . . .” However, to successfully walk away when you are ready to walk away, doesn’t come together because you say so. There are many factors to consider, decide and prepare. The more prepared you are, the more control you have of timing, valuation, ownership, legacy; along with financial protection for you, the business and your estate. The earlier you start that planning, the more secure you can be that all the pieces are aligned and integrated to achieve your objectives.

Timing Matters

Deciding when to exit, never mind which exit option you want to pursue, is non-trivial. The learning curve and execution of that decision is time-consuming for you the owner as well as your team of advisors.

Succession planning and exit strategy planning can be a distraction from running the day-to-day operation of your business. When you start early, you have control and flexibility to explore options and leverage your advisors to optimize your outcome. Consult your All-Star Team of Advisors early and often.

The risk of waiting until too late (and then needing to act fast because of health, business cycles, market conditions, business or family issues) is that you may leave up to 50% of the value of your business on the table, and share a greater portion of the proceeds with ‘Uncle Sam’. With good planning, that doesn’t have to be you.

 Orchestrate Your Exit

As Don says: “a well-developed exit strategy is carefully connected to your overall business strategy.”

That’s why at This Way Out Group, we provide a Four Step Exit Strategy Framework™ to tie every strategic decision in the business, short-term and long-term, to your exit and succession strategy.

In parallel, your estate plan and exit strategy must be integrated to work in concert with each other. It takes a team approach to orchestrate how these different pieces work together. At This Way Out Group, we facilitate that team to cooperate, coordinate and collaborate in your best interest. Contact us to see how early exit planning can help you.

Exit Options – Early Planning Offers Greater Choices

To achieve a successful exit, you must follow through and implement every plan outlined above. This stage is very straightforward but ends up being the hardest because it takes consistency, focus, commitment and dedication to the endgame while still consumed with 90-day operational plans too. It’s a lot of work. For best results, don’t try to do it all on your own.

Exit Options

There are tradeoffs for every exit strategy you consider. The chart below may be useful in exploring which options you want to consider. Each exit option can take your business to its next stage. You must evaluate how each option allows you to achieve your exit goals. It may be that there are elements of different options you want to consider or combine. Your exit can be as unique as the business you’ve built, the team that surrounds you, your core values and culture; and your leadership. As you guide the transition of the business to its next stage, you may end your involvement and get out, or define a new role to remain with the business in some capacity.





Merger with another company

Your company joins with an
existing company.

You may receive cash and/or
stock, resources of the two companies are combined, and some of your
management team may be kept on.

The new owner/manager may have
different ideas of how to run the business, your existing team may not
have the control they had under your leadership, merging the two
corporate cultures may be challenging

Acquisition by another company

Your company is bought out by
another existing company.

You may receive cash and/or
stock for the sale. You may be required to stay on in some capacity for
a specified period of time for transition.

Your corporate brand and
identity may or may not be preserved. The fit may not be perfect for the
business or your team.

Sale to a Strategic Buyer

A strategic buyer who wants to
run the company buys you out.

You may receive cash immediately
or structured over a set timeline.

It can be difficult to find the
right buyer, at the right price on your schedule. Change of
ownership/leadership may be difficult for employees and management.

Sale to a Financial Buyer

A financial buyer who wants to
add your company to their portfolio of managed companies

You may receive cash immediately
or structured over a set timeline. You may be required to stay on in
some capacity for a specified period of time for transition.

Financial buyers are looking at
the numbers and how to get a good return on their investment. How they
want to do that may be difficult for employees, management and clients.
There may be a clash of culture and values.

Franchise the Company

If your business is
replicatable, this allows you or new owners to expand locally,
regionally, even internationally.

You receive cash from each
franchisee, your current management team and structure are maintained.
Franchising is an opportunity for large-scale growth

Franchising takes time. The
process can be difficult and time –consuming. Not every business is a
viable candidate for franchising

Employee Stock Ownership Plan (ESOP)

Employees shares or stock of the
company over time.

Employees are rewarded for
contributions, receive incentives for longevity and share in the profits
of the company they helped you grow.

Employees may lose their shares
if they leave the company, employees share the burden and risk if the
value of the company goes down.

Management Buyout

Some or all of the existing
management team buyout the owner. This is one version of a group buying
the company instead of an individual strategic buyer.

You may receive cash immediately
or structured over a set timeline. You may be stay on in some capacity
for a specified period of time for transition.

Managers may
not agree on how to run the business without your leadership.
Negotiating a transaction may include many more factors and conditions,
as the buyers are also the team being valued.

Initial Public Offering (IPO)

Shares of the company are sold
publically on a stock exchange.

Shares convert to cash for the
owner and any initial investors. Major shareholder control the company.
Investors expect to see a potentially high return on their investment

The company must deliver nigh growth to generate earnings and interest
for investors, IPO costs are very high, IPOs offer a very uncertain
outcome for owners or investors.


Someone inside the company,
inside the family or hired in is trained and groomed to succeed the

You handpick your successor on
your terms

You are dependent on the effectiveness of your successor to ensure the
company can pay you (cash, annuity, payment schedule) and sustain the
company moving forward.

Close the Doors

Cease operations and liquidate assets

Minimize losses, quick exit.

Without any effort to monetize revenue streams or intellectual property,
you eliminate any chance to profit from the business

Is It Ever Too Early To Plan Your Exit?

Never. It’s never too early to plan your exit. It’s your biggest goal for your business. Achieving the goal of your ideal exit strategy is the ultimate accomplishment for goal achievers.

Ideally, your exit strategy should be part of your business plan from the outset, not just for businesses with outside funding. Every business needs an exit plan, even if you never got outside funding. If it wasn’t part of your business plan or your strategic plan, add it to your agenda for your next annual planning retreat to ensure that starting this year, you will lay out your exit strategy tied to your operational goals.

Here are four steps to ensure your successful exit strategy:

1. Take a holistic approach to planning your exit. That requires systematizing your whole business: not just finances, and cleaning up the books; but also:

• succession
• ownership
• control
• extracting value for you and your family
• maximizing value before you exit or sell
• the structure – what’s easiest to sell, or what can be monetized most easily
• systems ,strategies, process – get them out of your head
• team impact – organizational dynamics, contracts, continuity
• client/sales impact.

2. Consider and evaluate all the possible exit scenarios that might work for you and your business, e.g., sell a practice or sell your list; buyout by employees or partners, be acquired, appoint a successor or family member to continue the business, IPO. With each option, explore all the variations that might suit you.

Remember, your choices are greater the sooner you start planning your exit and the clearer you are on the goal you want to achieve and when.

3. Include your exit strategy in your annual goal setting. Align your short-list of chosen exit strategies with every goal they set so that each goal achievement moves you closer to your exit every year.

4. Make your exit strategy one of the criteria of every decision you make, every goal you set, so every goal you achieve is tied to and focused on that ideal exit strategy.

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