Business exit planning is the process of considering the options that are available to an owner and creating a plan that best controls how and when the owner exits from the business. There are several business exit planning options that may be appropriate for the owner to consider, but they typically fall into the following two categories:
- Transfer the ownership to family members or employees.
In this case, a business transition plan should be created that clearly defines who will succeed in owning and managing the business, what timeline will be established for this transfer and what actions have to be planned and executed. More about this approach to business exit planning is covered in separate posts entitled “Business Succession Planning Strategies” and “Business Succession Planning Checklist.”
- Sell the company to an outside 3rd party.
Selling a private company to a 3rd party should typically involve independent experts in business brokerage and/or investment banking. Be aware of taking an unsolicited offer from a third party without having created an auction type of environment in which multiple buyers are encouraged to compete to purchase your company. A business valuation on your company should be secured from a qualified business valuation expert. Once you have determined the approximate value of your business, look for strategic buyers who would be willing to pay even more for your business.Also consider the many different ways in which a sale can be structured in the definitive agreement. Some of these will get you all your cash up front. Others approaches use defined payments over time or based on specific performance. These add risk to your getting paid and potentially reduce the amount of cash that you will receive.
Consider the tax consequences of each of the above business exit planning options.
Different business exit planning approaches may have different tax consequences that will reduce your ultimate net sales proceeds.
Get help from outside professionals.
Business exit planning can be quite complex and will likely involve important accounting, tax, legal, business valuation, financial planning, and estate planning issues. Get help from experts in these areas and from a qualified exit planning professional. If the business exit planning strategy is to sell the business, get help from business brokers or exit planners in finding and negotiating with potential buyers.