What Is Your Business Exit Plan?
“What is your exit plan, your exit strategy?” The question from the bank’s loan officer caught one entrepreneur by surprise. He suddenly realized that his business plan assumed that he was immortal and business would always continue as normal. The next day, an investor asked him about exit strategy, however, he had a different reason for asking.
The banker was looking for stability in order to make a commercial loan. The investor was looking for when he would realize his profit by selling his shares. US Business Finance Corp helps entrepreneurs prepare for the banker or investor who is interested in the stability of your company – what are your exigency plans if the “key man” in sales or development moves on or is incapacitated and the investor who is interested in if he can realize a return on his investment if your company is sold.
New business owners caught up in the business planning and building phase find it hard to imagine an exit strategy, much less a need for one. Several exit strategies need to be planned: the exit of the owners or one of the partners and the exit of a key employee. Planning ahead allows steps to be taken that buffers the shock and helps companies transition through that phase when an exit happen unexpectedly.
Entrepreneurs love starting and building companies. Often their exit strategy is built towards creating a saleable asset that another company or investor would want to purchase. The return on the business sale then provides the capital for the next business venture.
For business owners who plan for long-term ownership, the exit strategy would more reflect purchasing “key man” insurance, delegating responsibilities to trusted employees, writing owner “buy-out” clauses into the corporation’s or partnership’s bylaws, and possibly creating a Employee Stock Ownership Plan (ESOP).
In reviewing how to adapt to the departure of key employees, the most successful strategy has been to systematize the business and provide training for newer employees. The biggest problem to filling empty shoes is when employees are allowed to keep company information in private files or in their heads. In systematizing a job, having openness of information to at least the owner or manager is of primary importance. If there is a sense of chaos in one area of your business, look for a way to eliminate it through accountability and responsibility of information storage and sharing. Job security should come through meeting performance goals, not in holding companies hostage by withholding crucial company sales or infrastructure information.
When you do move toward selling, make sure you utilize outside experts to assess a fair market value for your company and consider using a professional business broker to select potential buyers. Your attorney can prepare a confidentiality agreement for use with anyone reviewing your operations and financial records, as well as prepare and sales agreement.
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Filed under: Alternative Capital, Business Solutions, Money Matters - Business, Venture Capital, Your New Business
