Posts tagged with: exit options

Qualifying Questions For Your Exit Planning Virtual Partner

 

Virtual Partner – Exit Strategist

When you are ready to ask for exit planning help – how to get out, where do you turn for help? You need to know if they are dedicated exit strategists or is their primary business in a related field or expertise? Here are five questions to ask potential advisors to determine if they will focus on your best interests.

1.   What is your specialty? What is your core business?

You want an exit strategist whose focus is exclusively on your optimal exit, who is not distracted by other disciplines.

 2.   How will you charge me for exit planning services pre and post transaction?

You want to know you are being charged for exit planning expertise and exit planning time, not attorney time to do exit planning. You need an exit strategist on board, engaged in your situation years before you need your attorneys, accountants, and wealth and insurance advisors.

 3.   How engaged will you be in my operational implementation and transition up to the transaction?

Leading up to the transaction, licensed advisors will be focused on the expertise they bring to the table. Their availability will be limited to help you with operational decisions and issues leading up to the transaction. After the transaction, you will need your exit strategist engaged to ensure your total integration into your reinvention lifestyle, but after the transaction, licensed expert advisors will move on to the next transaction. How much will they/can they be there for you?

You want an exit strategist who will be fully engaged in operational implementation, growth and optimization strategies, and your own transformation from operational president/owner to the strategic CEO of a stronger more profitable enterprise, not just the 6-month end game.

 4. Will you help me assess exit options and timing/tax/liquidity impact of each?

You need an exit strategist to help facilitate discussions with all your exit advisors to integrate their recommendations and tradeoffs for each exit option you are considering. Any of your transaction experts who stay focused in their own silo of expertise cannot provide the wider perspective you need to make the best decisions.

 5. What will you do to assist me in determining my reinvention plan and my goals and lifestyle beyond the business exit?

All the licensed transaction experts you engage for their expertise can ask you all the right questions, but they expect you to prepare and deliver the answers on your own. You need an exit strategist who will assist you in developing your reinvention plan and lifestyle beyond the exit, test it, refine it and lay out a blueprint to implement it from Day 1 of your reinvention.

Whether you engage the Exit This Way Out Group as your virtual partner or not, you need to use the materials, checklists, tables and guidelines provided here on the site and in our home-study course to make your business a wealth producing machine that will provide the financial independence you dream of to fund your reinvention.

How and When to Cash Out of Your Business

Cash OUt

When you started your business, your whole focus was to get customers, generate revenue and try to make a profit from what you love to do and what you are very at.

It’s never too early or too late to plan your exit. Think about your options now, whether you plan to cash out in the next couple years or in a couple decades.

Every business owner has 3 OPTIONS  of how they’ll get out.

  1. The first option is the default that over 95% of all business owners choose. That’s to do nothing, exit feet first and leave your family to muddle along or liquidate the business as best they can to pay your estate taxes.
  2. The second option is a bit better. That’s the standard option of paying a fee (e.g., $50K+) and a commission (3-10%) upon sale with an outcome that can pay you the owner a modest multiple (x) of your operating profit 6-10 years from now.

Have you thought about this as a viable option?
Do you want to wait that long?
Do you have the drive to continue growing the business another 6-10 years?
Is that the return you were looking for?
Can you finance your reinvention on that?
Is it close to your Number?

Are you aware of how this works? I want to make sure you know about it – but I think it’s an option that favors the buyer. But you need to know what it is to know if it is distasteful for you.

Alternatively, did you know it’s in your better interest to exit early, that when you exit in the first 3-5 years your ROI is greater? And right now, if you exit in the next five years (2013 – 2018), it is optimal timing to hit the seller’s market, instead of the buyer’s market if you wait more than 5 years (beyond 2018).

3. I offer a 3rd option for how to get out. My way is more pro-active and
measurably more expensive up front.
My approach helps owners optimize and leverage results early.
They can exit 2-4 years earlier, potentially realizing 4-6x operating profit,
instead.

 Your Choices

  • Take my 3rd option and get out four years earlier, with a higher multiple of EBITA in cash, with systems, structures and wealth preserving vehicles in place to maintain the lifestyle and benefits your business has provided, or
  • Take the standard option of a lower multiple in 6-10 years when it will be a buyers’ market.

Here’s how I make you succeed. I take a comprehensive strategic approach with only one objective, to help you the selling business owner get out on your terms on your timeline. This is all I do.

HARVEST YOUR WEALTH — Exit Essentials for Your Business

ANNOUNCING

This Way Out Group LLC announces the release of HARVEST YOUR WEALTH – Exit Essentials for Your Business by exit strategist, author, speaker, and radio host, Kerri Salls to help business owners cash out of their business so they can cash in on their future.

FRAMINGHAM, MA (January 21, 2013) – This Way Out Group (http://thiswayoutgroup.com), the break-out boutique services firm providing comprehensive collaborative exit planning services announced today the release of HARVEST YOUR WEALTH – Exit Essentials for Your Business (This Way Out Press $17.97 on Amazon) by CEO and author, Kerri Salls. HARVEST YOUR WEALTH – Exit Essentials for Your Business educates and prepares business owners to monetize their business on their terms when they plan to get out, instead of simply shuttering the business and walking away. Only when an owner prepares the business for a clean, solid, and profitable exit can they expect to cash out of the business to cash in on their future. Written by expert exit strategist Kerri Salls, HARVEST YOUR WEALTH reveals the secrets the transaction experts want entrepreneurs to know before selling a business, but no one has been telling them until now.
In HARVEST YOUR WEALTH, Salls introduces the 95% of all entrepreneurs and owners who do not have an exit plan for their business to the decisions, choices, options and opportunities they need to know about years before they decide to get out of their business. She advocates for early exits, especially over the next five years for baby boomers.

Salls says, “HARVEST YOUR WEALTH gives the owner/entrepreneur more control and leverage getting out. Plenty has been written on starting and growing a company. Very little has been written on exits, on monetizing that investment to be able to get out. What has been written has focused on the financial and legal side of the exit transaction or from the advisor or the buyer’s perspective.”

Less than 10% of business owners who put their companies up for sale actually get the deal done. (2010 Survey of Brokers and Buyers by MidMarket Capital) “[Exiting small business] owners are preparing for the deal of a lifetime with possibly zero experience.” (MorganStanley SmithBarney publication, 2011) [via Blackbridge Newsletter 2011]

They think they’ll be able to sell when they want for what they want with no lead-time or preparation of the business, the team or the business owner. That’s a diet of hope and promises that will satisfy no one. Because of a lack of pre-planning, 95% of all business owners are leaving up to 50% of the value of their business on the table when they exit.

In this book, Salls focuses on the needs of owners to make their business buyer ready and buyer attractive; on exit planning from the seller’s perspective before the transaction experts, or the buyers come into the picture. The urgency for baby boomers to act now cannot be overstated.

HARVEST YOUR WEALTH provides steps, checklists, assessments, questions and exercises all business owners must consider in order to take control and achieve their goals in the business and beyond. Salls provides the resources, tools and insight to encourage entrepreneurs and business owners to, as she says, “Plan their exit from the outset.”

Salls started her career in the Peace Corps in West Africa and then spent a decade accumulating multi-million dollar corporate achievements before launching her first business in 1988. She has been active in business strategy and exit planning for 40 years.

This Way Out Group LLC [http://thiswayoutgroup.com] has been refining and applying a holistic system to assist business owners since 1999 specifically to help owners transform an income generating business into a wealth-producing machine so they can sell or scale the business on their terms on their timeline. Partnering with the business owner 2-5 years before their expected exit, we help established and hyper-growth companies prepare for and achieve their optimum exit strategy. We help owners to accelerate sales, optimize growth, and maximize value to make their business buyer ready and buyer attractive so they can get out and move on to the next venture, adventure or avocation.

HARVEST YOUR WEALTH – Exit Essentials for Your Business is available at Amazon and other outlets or at www.harvest-your-wealth.com.

TO ARRANGE INTERVIEWS OR MEDIA/SPEAKING APPEARANCES CONTACT:

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.

Exit
Options

Definition

Seller
Benefits

Seller
Drawbacks


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.


Succession

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

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

Exit Planning for Your Transition to Reinvention

Ideally, exit planning occurs before action in every area.

Too often business owners/CEOs assume that because they want to exit the business soon, that they just have to act to make it happen. In fact, they are often surprised by how extensive the planning is that they must work through before they can get out and transition to reinvention.

Exit planning must include each parameter on this list.

Exit Objectives – Before you proceed, you must identify your exit objectives for the business and for your life beyond the exit.

Value Drivers – You must identify your value drivers, the value drivers that will make the business buyer attractive and the value drivers that secure the future growth of the business and protect your employees.

Transfer Control/Ownership/Management – Control, ownership and management are not the same thing. So planning how to transfer these different skill sets to successors is essential. You need to break them into distinct skill sets before you decide who you will train to succeed you in each area.

Contingency Planning – When things are running smoothly, owners think contingency planning is irrelevant. But if illness or an accident incapacitates you, your valuation will plummet unless you have a contingency plan/continuity plan established, documented and ready to activate.

Wealth Management/Preservation – You have to decide how much of the illiquid wealth of your business you want to leave in the business, to maximize valuation and secure future company success vs. how much do you need to liquidate to achieve your exit criteria and the financial freedom to pursue your reinvention.

Successful Exit – Defining and planning what a successful exit means to you is important. There is no vanilla answer. It’s unique to you, your family, your goals, your business, the lifestyle of your dreams. If you can’t describe it, you will never know when the package on the table meets your needs.

Exit Options – The earlier you start exit planning, the more options you have, the wider range of exit vehicles, wealth vehicles and reinvention options you can have.

It’s Never Too Early to Build Your Team of Exit Advisors

To streamline and optimize your business for maximum value, you need to think strategically and keep an eye on every facet of the business, the team and your personal goals and objectives. No one can do all that alone. It’s never too early to build your team of exit advisors.

The best advisors are proactive, open-minded and client focused. Before you commit to any advisor being on your exit team, specifically focused on your exit objectives and timeline, it’s up to you to qualify them to be part of this specific initiative. You need a full complement of advisors, not just your accountant and attorney when you prepare to get out of your business and move on to your own reinvention.

You need the full team of experts on board now to:

  1. Build a strong deep foundation to strategically grow the business.
  2. Accelerate growth to achieve your specified goals and objectives for the business.
  3. Protect all intellectual property – to have all patents, trademarks and copyrights secure and complete well before you want to get out, making them easy to identify and monetize.
  4. Get all governance up to date and compliant – That includes minutes, resolutions, and annual meetings being recorded, complete and up to date.
  5. Get the financial books meticulously clean – This goes far beyond balancing the books and paying taxes.  It can take 2-3 years to achieve clean books ready for review or audit.
  6. Maximize valuation – your advisors will help keep this goal in mind at every milestone and strategic decision to ensure goals and investments are always tied to increasing the value of the business.
  7. Expand exit options – the earlier you start and with a full complement of advisors, you have more exit options to choose from because you have the lead-time to explore them before you decide how and when to get out.
  8. Ensure the business is buyer ready – your advisors will help you become a strategic CEO with the team in place to run operations independent of your daily presence. This is the easiest way to be buyer ready and buyer attractive, and demonstrate that the value of the business is in the business, not in your head.
  9. Get your accountants, tax advisor, estate attorney and wealth advisor on the same page. Do this early to expand your wealth preservation options to serve your reinvention goals, objectives and legacy. They can do a better job of achieving your goals when they are on board early and can implement tactics pro-actively for your future plans.
  10. Document and codify every system, strategy, process and procedure in the business. This one simple discipline adds value every day. It’s also one of the biggest ways that owners lose value in negotiations with buyers because they ‘never get around to it’.
  11. Give you greater leverage in negotiations with potential buyers. When your team of exit advisors has been working together building your business into a wealth-producing machine over time, you are in a stronger negotiating position with potential buyers.

When you surround yourself with a range of experts to support the exit process over the next 2-5 years, your business will be stronger, demonstrate appealing growth projections, will have a higher valuation than otherwise possible, and become buyer attractive. As a result, you can and will be able to exit your business by intention on your terms instead of closing the doors with no monetary gain by default.

Flawed Skill Sets of a Strategic CEO

In the area of skill sets struggling strategic CEOs lack, do you experience any of these?

  • No time to plan
  • Can’t stick to the plan
  • Can’t delegate/afraid to delegate
  • Stuck in systems and tools that hold you back
  • Still using systems and structures you have long outgrown
  • Trying to wear all the hats
  • No control of financials
  • Trying to be the technician and the visionary
  • Never enough time for your most important activities
  • No time for strategy and planning
  • No tracking/monitoring/measuring
  • No accountability in the organization
  • Poor time management skills
  • Mismatch between market needs and company capacity to serve and respond
  • Use/misuse/lack of automation or relevant technologies
  • Too much operational responsibility to focus on CEO oversight role
  • No development of management or grooming of successors

If any of these is a challenge, then you are still working too much in your business. Instead, you need to prioritize working on your business. You need to build up your strategic skill set. These are the core responsibilities you will be responsible for in exit planning.

To take on more strategic responsibilities and help the organization morph into a structure and business model that can grow to fulfill its true potential, you must delegate operational roles, responsibilities, tasks and control. This does not happen overnight. This transition goes hand-in-glove with your exploring your exit goals and exit options.

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