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When Should I Start Planning For An Exit?
The answer 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 business transition. If you plan ahead thoughtfully, you can create certainty and stability during the business 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 and cash flow forecasting are sound will improve your outcomes.
Types of Exit Strategies
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. Mergers and acquisitions consulting can help your company achieve the maximum acquisition value for your exit.
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 Services
To get started on your exit plan, you need an experienced Exit Planning Advisor and team of trusted advisors who can fully understand your goals and create a customized plan to achieve them. The best way to plan for an exit is to start early so time is on your side in case your goals, current market conditions, or the value of your business changes. Use our exit planning services will equip you with a team of experts to guide you through your exit planning and capitalize on your profit.
Exit Planning Begins with Excellent Financials
Whatever your path forward, a successful exit 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.
The Exit Planning Process
The Exit Planning Process has several steps that include the following:
- Understand the goals of the business owner(s): What would the business owner(s) like to achieve with this exit? A complete understanding of those goals will guide the entire exit planning process.
- Determine the true value of the business: Establishing the business valuation is a critical next step after setting goals because it determines whether or not the exit objectives can reasonably be met.
- Continue to build & preserve the value of the business: Create customized plans that continue to build the business’s value over time.
- Sell to a third party or transfer to management or family members: Help the owner(s) prepare for a sale to a third party or transfer plan that keeps them in control of the business until the entire purchase price is received.
- Create a contingency business plan: Consider what would happen if the owner does not live to transfer or sell the business. A plan must be put into place to mitigate this risk.
- Financial planning and estate planning: Coordination is done with the owner to make their goals a reality.
READ OUR CASE STUDIES:
Due Diligence Leads to Successful Sale
Case Study – A Media-Buying Agency Reaps the Benefits of Having a Team of Financial Experts
Case Study – How One Ecommerce Company Transformed Their Business and Gained Superior Visibility into Their Financial Performance
Case Studies – Scaling an Online Platform
Case Studies – Preparing for Exit
Case Studies – Start-up Concept Validation
Case Studies – Ready For Growth Phase
FAQ SECTION:
What size business is best suited for each type of exit strategy?
Mergers and acquisition agreements can be essential for small and medium sized companies. The same is true for an Initial Public Offering (IPO) when the small or medium sized businesses are in an emerging industry. Any sized business can choose to liquidate. If you’re unsure on what exit strategy is right for you, reach out to TGG, your trusted merger and acquisition consulting company, and we can help you determine the best way to move forward.
How can I make sure my company is prepared for exit?
The best answer is to have true GAAP compliant financial statements and your financials are done on an accrual basis. You should also start on your exit plan at least 3 years before you plan to sell. TGG succession planning consultants have helped dozens of businesses plan and prepare for an exit by getting their financials in order with GAAP and accrual accounting.