Exit Strategies for selling your business

Building a successful business does not mean  that one has allowed for a successful exit, yet that is the reason entrepreneurs, owners or managers started on the private business path originally. It is not enough to build a business worth a fortune, at some point in time that fortune has to be realized. Successful sellers are building companies that run well without them and that will allow for easy transfer of ownership.
Lack of preparation is a common mistake that business owners make. Financial reporting, tax accounting, asset management, real property, employees issues and of course cash flow all have a significant impact on the pot of gold at the end of that well built rainbow. This preparation doesn't happen overnight the time to start preparing a business 4-sale is right now, the longer the preparation time the better. Focusing on EBITDA, improving ratios, consistent performance and a supportable business plan will add significantly to the earnings multiple obtained.

Lets say your ready to cash in some or all of your well earned equity value how should/could you go about it?

Milk the Cash Flows; I am sure you have heard the expression "Cash Cows" one good exit strategy is to turn your company into one. Stop investing in new equipment or technologies and instead pay yourself a high salary. What is wrong with a 30 hour work week and a 7 figure income? Besides since the company will most likely be valued on some form of adjusted EBITDA short term milking may actually produce your greatest total return via generating large cash flows prior to a sale of the company. Of course ordinary income is taxed at the highest rates and another negative of milking is, if prolonged, the company will eventually dry up and leave your valued employees out of  a job.

Sell Part of the Company; It is surprising how many Owners fail to consider this option. There are many equity groups and investors who are willing to buy a portion of a business thereby enabling a nice payday (at capital gains rate) while retaining a share of a growing company in which to participate. Alas, the big problem here is that entrepreneurs are not likely to take kindly to someone else telling them how to run "their" company. It is unlikely that an owner would be cashed partially out without giving up controlling interest. That may be a small concession to make given the chips that get cashed in as well as "other peoples money" that is going to be invested to help the minority interest grow bigger and there is the transition period where the owner gets to stay at the helm with a nice salary and a 30 hour work week, not bad!

Sell All of the Company;

• Friendly's - Family, Managers, Employees (ESOP) or partners, this is not the avenue to rake to get the maximum price but it may well be the emotionally the best. There are capital; sources available to fund partial management or employee buyouts.
• Strategic- Sell to a company within the same industry or similar customer base. The concept here is that synergies in management, sales and technologies will drive greater value (and thereby valuation) when combined.
• Private Equity Group-(PEG) there are numerous private equity groups looking to acquire good companies. But excellent preparation is the key to quickly instruct the PEG in the industry, niche and forward looking business plan. Most but not all PEG's are looking for continuation of existing management and would look to incentivize those who stay on. In addition many PEG's have  portfolios of similar companies and by becoming part of the portfolio a company gains synergistic benefits.
• Individual- their are private investors who are looking to purchase and run a company and the color of their money is the sane as everyone else's.

In summary there isn't any reason why an owner couldn't consider all of the above options or put them in motion simultaneously, with the exception of the friendly's.  If a Friendly sale is a real option then that option should be exhausted prior to moving in other directions. A key is to not focus on one approach but through proper preparation enable them all. Last but certainly not least, use all the professional resources available to supply strategic advice and matchmaking. Lawyers, Accountants, Financial advisers and Business Intermediaries all have a valuable role to play.

Management Resource, is a Merger and Acquisition Intermediary affiliated with The Gottesman Company  we offer over 25 years of experience,  integrity and support to middle market companies.
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