The answer is, essentially, that depends on what you expect from your exit.
If you’re planning on passing the company to a child, 10 years is a good timeline to plan for other sources of income in retirement.
If you are looking at an IPO, plan around growth of $1m to $100m in 7-10 years (so you have a shot at an IPO).
If you’re hoping to get acquired by a larger company, be certain your IP is secured and your financials are in order (3 years out is ideal for best EBITDA).
Benefits of an exit strategy:
- Your family: Like estate planning, devising a strategic exit ensures you’ll protect your spouse or heirs from engaging in unnecessary decision-making & tax burdens by handling these things before they have to.
- Your retirement: Practically speaking, you want to maximize the value of the wealth your business can afford you, beyond your annual salary. Maybe the goal is a lump sum that will buy a vacation home in Palm Springs; maybe it’s an annual dividend that simply allows you to live without worry. Either way, it’s important to consider your own financial goals here—after all, you’re the one who built the business.
- Transition planning: Your employees and Board of Directors will likely work hard to help you achieve your exit goals, and it is in the best interest of everyone to facilitate a smooth transition. If you plan ahead thoughtfully, you can create certainty and stability during the transition.
- Maximizing value & growth potential: Whether you’re eyeing a $20M acquisition or just looking to grow aggressively, implementing tangible steps to ensure your financials are sound will improve your outcomes.
Mergers & Acquisitions
This is the most common exit strategy. M&A benefits investors, founders, and equity-holding employees by offering a direct return on investment in a lump sum.
Initial Public Offering
An IPO means transitioning from a privately-held company to a publicly traded one. You’ll work with a bank to set the value of your company’s shares, and then hope that the market drives the value up even further. IPOs have strict SEC requirements that accompany the process and accurate financial are essential to gaining SEC approval for your IPO.
Liquidation
Typically, liquidation is not ideal. It’s often the result when there’s a lack of strategic exit planning. Certain industries do not have a robust market for M&A, IPO or succession, in those cases liquidation is the best option for an exit.
Exit Planning Begins with Excellent Financials
Whatever your path forward, your plan is best served by impeccable financial record keeping and the business security you will gain from letting the numbers guide your insights into your business.
The TGG Way™ implements the excellence in financial reporting that large corporations use to guide their business decisions and applies it to small and mid-sized companies, giving them the insights and decision-making certainty to plan for the future, whatever that future may hold.
