Your ExitMap Blog
Exit Planning Articles Focused on your Exit Options
Exit: Exit Options
Should you be targeting a specific segment of the buyer market? How can that be accomplished? What technical issues will you face with taxation, negotiation and contract structure? The specific and unique challenges of Family, Employee and Third-Party sales.
Should you be targeting a specific segment of the buyer market? How can that be accomplished? What technical issues will you face with taxation, negotiation and contract structure? The specific and unique challenges of Family, Employee and Third-Party sales.
Most Recent Your ExitMap Blog Articles
Quarterbacking is Not Exit Planning Quarterbacking is a popular term when exit planners are talking to clients. It’s supposed to invoke a vision of someone who is in control. Think about a Tom Brady, Aaron Rodgers or Patrick Mahomes standing tall in the pocket, surveying the offense and defense unfolding before him. There is a real problem with using “Quarterbacking” when referring to your exit planning professional team. The quarterback calls the plays. The job of the rest of the team is to run them as instructed. I’ve yet to meet a CPA or attorney who thinks that is the best way to develop a client’s exit plan. Teamwork Exit ... Read more Why Plan Now? Exit Planning for Small Business Owners ask all the time, “Why Plan Now?” “I’m not planning to leave my business for years. I feel good, and I still enjoy my business. I’m not sure what else I would do. Besides, if my company is only going to sell for two or three times earnings, I can make more than that by sticking around.” All are valid arguments. Baby Boomers, the youngest of whom turned 55 this year, are working longer and are more active well into their 60s and often into their 70s. The term “next career” describes the growing portion of the population who are choosing another full-time activity ... Read more Selling to Employees: Exit Planning for Small Business Part 4 Selling to employees is one method of transition that is growing rapidly in popularity. Usually the driving motivation is a desire to help the people who got you this far enjoy some of the benefits of ownership, but there is a substantial list of other benefits. Pricing is agreed at the start, not in adversarial negotiations. Valuation is flexible. The business can be sold for more or less than its Fair Market Value, as long as both sides agree and cash flow supports it. The legacy of the business lives on in the community. Where there are substantial challenges to an outside buyer, such as ... Read more Family Succession: Exiting a Small Business Part 3 It’s time to discuss family succession. In Part One of this series we looked at exit strategies that aren’t really available to small businesses, and in Part Two we discussed selling to a third party. Now let’s talk about the issues when transferring to a family member or members. Which Kids? When passing the business to family, often the primary issue is inheritance. Small business owners frequently have 50%, 60% or as much as 80% of their personal net worth in their company. There is a temptation to treat the business like any other personal asset, and divide it among all the children. dinner “After ... Read more Exiting a Small Business #2 - Selling to a Third Party “In our last episode,” (I’ve always wanted to say that) we discussed the exit paths that are not usually available when exiting a small business. Those are ESOP, Private Equity, and Strategic Acquisition. Now let’s talk about what you can do. The Realities of Selling to a Third Party Multiple surveys over the last decade all show the same result. About 85% of small business (5 to 20 employees) owners say that their exit plan is to sell to a third party. Let’s do the math. There are currently over 3,000,000 small business owners over 55 years old in the USA. We can assume that ... Read more Exiting a Small Business Part 1 Owners who are exiting a small business are often stymied by the range of choices in exit planning. Most literature on the topic discusses seven or eight avenues to exit. A sale to a third party can be to an entrepreneur, private equity (including family offices,) or a strategic acquirer. Internal sales can be to family, or employees via a Leveraged Buy-Out (LBO- often called a Management Buy-Out or MBO.) There is also a sale to an Employee Stock Ownership Plan (ESOP) or the oldest method in the book, closing down the company. While the jargon is appealing to those advisors who want to sound ... Read more Using Waterfalls in Exit Planning One of the most useful concepts in business planning is that of “waterfalls.” The analogy is apt, if perhaps less than perfect. Think of any outcome anticipated in a contract that is based on an “if…then” situation. It can likely be served by structuring waterfalls. I originally started using the term in buy/sell agreements. When a shareholder chooses to leave (or is forced out,) the options for purchasing his available stock are waterfalls. The first option may be for all the the shareholders to buy the stock in proportion to their existing ownership. If not all the shareholders wish to purchase, the “waterfall” or back-up ... Read more Video on Preparing for Your Exit Plan I contributed this video interview about preparing for your exit plan to SuccessionMatching.com for their recent Summit. It is about preparing what you need before starting your exit planning process. Succession Matching has made it available for free for another week. (requires creating a user name and password) I hope that you enjoy it. Invest 15 Minutes and take our FREE Exit Readiness Assessment. We do not request any confidential information. John F. Dini develops transition and succession strategies that allow business owners to exit their companies on their own schedule, with the proceeds they seek and complete control over the process. He takes ... Read more Exit Planning Choices Podcast I had a nice conversation, on exit planning choices, in 2019 with Pat Ennis of Ennis Legacy Partners and Walter H. Deyhle of Gelman, Rosenberg and Freeman,CPAs, both in Maryland. Learn about your choices when preparing to create and implement your exit plan. Exit planning is about choices, get to know the choices that you have. Thanks for the invitation, Pat! You can listen (25 minutes) here. I hope that you enjoy. Invest 15 Minutes and take our FREE Exit Readiness Assessment. We do not request any confidential information. John F. Dini develops transition and succession strategies that allow business owners to exit their companies ... Read more Time Frames for Exit Planning Time frames are one of the most critical, challenging and frightening factors in planning your exit. At the same time, they are one of the most flexible factors in your plan. How can something be this important and still be fungible? When we interview an owner, one of our first questions is about time frames. Note that they are plural. The first is when you want to step away from daily management of the business. The second is when you want to leave entirely. Those questions also lead off our exit preparedness Assessment, the ExitMap®, and impact the scoring on many of the other responses. When ... Read more Exit Planning: Controlling Your Choices Many owners are reluctant to plan for their departure from the business. In some cases it’s because they are too comfortable with ambiguity (see my previous post.) For others it is because they fear losing control. They believe that setting a final date for their departure, even tentatively, starts a process that will take on a life of its own. The tag line of this column is “Control the most important financial event of your life.” Control is the key. Refusing to deal with the realities of an eventual transition from the business is surrendering control. Sooner or later, something will happen that requires a transfer of the ... Read more Ambiguity Kills Value Ambiguity kills value. That was a key point in a white paper from Orange Kiwi that I read over the holidays. Taken from the PhD thesis of Dr. Allie Taylor, the paper describes the psychological profile of entrepreneurs, and their historical reluctance to begin an exit planning process. According to Dr. Taylor, entrepreneurs have five major behavioral traits; Risk Taking, Innovativeness, Need for Achievement, tolerance for Ambiguity and a locus for Control. This follows closely my description of the mind of an entrepreneur in Hunting in a Farmer’s World. In that book I discuss the traits of tenacious problem solving and the ability to navigate in the ... Read more Succession Planning - Ownership Lessons When selling your business to employees or family, ownership lessons rise to a special level of importance. Regardless of the financial, inheritance, estate or valuation aspects of the plan, the real question is how to prepare your successors to run the company. I’ve written before about the Luxury of No Resources. When you started out, making mistakes was part of your business education. The company was small, so the mistakes were small. Now you’ve built a substantial enterprise, and your successors can’t afford to learn by trial and error. (Especially if you are depending on them to be successful enough to pay you for the ... Read more Transition TribulationsThis article in Financier Worldwide of the United Kingdom quotes me extensively. I thought you might like to see it. (My spellings were changed to British standard.) Transition tribulations: exiting a family-owned business by Fraser Tennant When the owner of a family business decides to call it a day in order to enjoy the fruits of his or her labour, the transfer of ownership can be a challenging process. What is more, in the US in particular, transitions of this nature are becoming ever more common. Indeed, as highlighted in JC Jones and Associates LLC’s white paper, ‘Exit Planning for the Family Owned Business Owner’, more than ... Read moreYour Transition Advisor Team Nothing impacts the success of your business transition more than the advisor team. Let’s say you receive a free pass to play in the Super Bowl. You will be playing against the New England Patriots, but you can choose any NFL player not on their roster for your team. Who would you pick? There are a multitude of opinions about who is the best quarterback, wide receiver or free safety. One thing is pretty certain. You wouldn’t choose the guys you grew up playing touch football with. At least, not if you wanted to win. Owners feel loyalty to the trusted advisors they already have relationships with. ... Read more |