Why Exit Planning Now?
Every business owner is facing the same thing. Their investment portfolios are down from where they were three years ago. The value of their real estate holdings are down and business values have been hit hard due to this recession.
Yet there is every indication that the recession did not repeal aging.
As aging business owners who want leave their business continue to enter the market, there will be competition for qualified buyers, particularly during this fragile period as the economy begins to mend.
For most middle market business owners, the typical voluntary exit routes are limited to a sale to insiders, a sale to third parties or variations on those. In either case, preparations must be made, often two to five years in advance, for the owner to reap the company's full value at the time of sale.
But often, owners fail to engage in this kind to planning, because they are:
· too busy , buried in the details of their business
· have never met an advisor who specializes in this kind of work
What are the risks of failing to plan?
Entrepreneurs are risk takers by definition. Most risks they take in business are calculated and well thought out. Those risks which they don't want to take, they insure or hedge against. Sometimes.
This country's slide into economic meltdown has taught us what Warren Buffet has said for a long time. To paraphrase: A rising tide lifts all boats. The tide going out shows who has been swimming with no pants on. The risks of overusing debt, not diversifying customer and vendor bases, not having solid collection policies in place have hurt a many businesses and the pain is still fresh. Here are just a few of the risks going forward:
· Your business won't sell in a timely fashion OR at a price that you deem reasonable
· Your hand-picked inside buyer doesn't have the cash to buy you out OR the skills to run the business well enough to repay a note that you will have to carry because the bank won't lend him money
· Your partner will die or become incapacitated before you have completed any of the necessary strategic transition planning. You may not even want to sell the company, but it may be the only way to satisfy the surviving spouse.
No exit planner, without the help of a crystal ball can eliminate all of the contingencies. Nor will all the contingencies strike any one company. What we must do is use a systematic process that moves an owner along to his or most desirable outcome.
The Four Phases of Exit Planningsm
In future issues, we will discuss in more details the Four Phases of Exit Planning
sm .
· Phase 1: Framing the issues
· Phase 2: Building the Structure-Growing and Protecting Owner Value
· Phase 3: Putting the House in Order-Succession, Contingency and Estate Planning
· Phase 4: Turning Over the Keys
