When business owners think about transitioning out of their companies, some of the first thoughts that come to mind relate to the sale of their business. In fact, many business owners believe that in order to exit their business they need to sell it to someone else. As a result, the term ‘exit planning’ is often misunderstood and interpreted by owners as a ‘sale’ of their company.
This newsletter is written to help owners to see that developing an ‘exit plan’ for their eventual transition from the business is not the same as the sale of the business. In fact, as the ‘exit planning industry’ continues to develop, a strong track record is being developed that demonstrates that owners who plan for their eventual exit fare better than those who simply view an ‘exit plan’ as a sale of the business and wait until the last minute to take action.
This newsletter seeks to differentiate selling a business from establishing an exit plan so that owners can consider the benefits of a plan for their exit as a way to protect and harvest the value that is inside your privately-held company.
Ten (10) Differences between Selling and Establishing an Exit Plan
The table below was created to provide ten differences between selling a company versus establishing a plan for an eventual exit.
|Sell The Business||Develop an Exit Plan|
|Advisor motives rule||Owner motives rule|
|Advisors are transactional||Advisors are relationship-based|
|Goal is ‘sale of business’||Goal is to achieve business owners’ stated goals|
|Process includes ‘finding buyers’||Successors/buyers are found or ‘created’|
|Sales process at ‘mercy of market’||Transfer process is controllable|
|Outside party necessary for deal||‘Internal’ transfers considered w/ external|
|Company is ‘shopped’ to market||Company examined for various transfer options|
|Negotiations center around price||Discussion include various transfer methods|
|Large advisory fees & taxes paid||Taxes & fees can be controlled and managed over time|
|Company sale – primary consideration||Personal and corporate objectives considered|
As the chart indicates, there is a great difference between the sale of a company and the strategic development of a plan for an exit. As the chart illustrates, the benefits that an ‘exit strategy’ can provide include:
– Evaluation of various transfer options
– Potential for creation of a buyer
– A controllable process happening over time
– Enhanced management of taxes and fees
– A comprehensive and objective process that includes both personal and corporate objectives to drive the overall decision-making process
These combined differences make the larger point that an ‘exit strategy’ can be developed and executed over a long period of time without the time-sensitive influence and pressure that comes from the sale of a business.
So given these large differences, let’s discuss the merits of a well-developed exit plan and show how the sale of your company may or may not be one of the last action items in the overall plan.
A Well Developed Plan for an Exit
Owners who engage in an exit planning process may or may not sell their company in the future. However, before any decision is made to sell, a process can be followed to determine an owner’s goals and the readiness of that owner to reach those goals. Further, owners are educated on different options during an exit planning process whereby the pros and cons of different exit alternatives are evaluated to get to the one that works best to help you achieve your goals – within the time frame of your choosing.
The benefits of developing an exit plan long before any consideration is given towards the potential sale of your business are many and great. Most of all, you as an owner will achieve a certain amount of clarity that the transaction that you are choosing will be the one that is best for you – this may or may not include selling the company to an outside buyer.
Consider the formation of an exit strategy from your business today and join the growing number of business owners who are learning that ‘selling’ is not their only option.