Typical Ways to Exit Your Business
November 19, 2015|
If everything goes well, for the typical small business, it provides a nice income for the owner and is then sold for a good price. The key to a successful exit here is to make sure that your business will bring a top price for its category and location.
Small business owners with an eye to exit can manage the business’ income for a couple of years before seeking a sale. Boosting income can be accomplished in a number of ways. One way, of course, is to boost revenues. Top line growth is best, if you can maintain or improve your profit margins. You can also reduce expenditures, by deferring capital expenditures, reducing training and business travel and entertainment. With a “health check” by us, you prove your business’ past performance and can justify full valuation in your asking price.
Sometimes, it makes more sense to exit by closing the business at the end. This often happens when the underlying real estate has become valuable-good for you if you own it, bad if you are leasing and the landlord declines to renew the lease or proposes such a change in rent that your business cannot continue to be profitable. A planned store closing can be very profitable.
Bankruptcy can, in some cases, be a good exit from your business.(last resort stuff) A bankruptcy can be used to reorganize the business and allow you to continue operating it. It also works to salvage it and allow someone else such as a creditor to operate and sell it. Finally, it can be a clean break from your old debts and obligations.
Another good exit is to develop close relationships with other businesses that may be interested in acquiring you in the future. Although they can be competitors, it’s usually best if they are not exactly in your market niche. Your most promising opportunities will come from businesses with which you have a strategic fit, where your business makes theirs stronger and vice versa. Those are also companies you may decide to acquire if you have the resources and they appear to be available. The closer the relationship that you have with them, the better that you can value each other.
If your company is growing well and needs ready access to large amounts of money to continue that growth, you may want to consider positioning it for an IPO (initial prospectus offering.) This is a very expensive and involved process that allows your company to sell stock to the public.
A great way for someone who has built a business over the years to cash out is by selling it to someone who intimately understands all of the operations and realizes the company value. In a small business, you may have an assistant who would be interested in buying your business. It is often good to offer them part-ownership to start, and then sell them more of the business until they have full ownership. There are a number of ways to finance this. If you know that they are good and that the business is solid, you may consider carrying the financing for the purchase. It’s worth spending some money on a good lawyer when drawing up the sale contract. An enforceable contract can protect you from unexpected business problems.
Larger companies often require more cash and a good source of buyers is the company managers. Often they will not have the money to buy you out, and you may not want receive steady payments. These buyers, with a proven industry track record and your company’s solid assets, may be able to get the money from investment bankers or private equity companies.
The end for many business owners can actually be their own “final exit.” If it is unanticipated, a number of unpleasant things can happen to your business and your heirs. At the very least, no matter how young you are, you should know who is going to end up with the responsibility for running the business and who will get the benefit for owning it. Often these will be family members but they can be trusted associates or organizations that provide needed services. You can even set up your own family foundation and leave the business or its proceeds to support purposes that you have specifically chosen. The key to success here is to pick trustees who will follow your wishes as well as your will.
If you do intend to leave a profitable business to your heirs, rather than to a charity or foundation, it is a good idea to transfer ownership to them in an orderly way that will minimize your tax liabilities. A good estate lawyer will be able to help you structure the transfer so that taxes and other liabilities will be reduced and you can feel safe that the government will get what it is owed and not a penny more.
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