Exit
strategy is a predetermined objective which is employed by a
businessman who is planning to transfer his business responsibilities to
another person, for various reasons. This article will help you to know
how to write an exit strategy.
Exit strategy should be planned,
keeping in mind the long and short-term objectives of the company owner.
It should be considered and developed right from the beginning, once
you have finalized with your long-term and short-term goals. Keeping the
expectations according to your business, and planning the strategy will
be helpful. Before you plan the exit strategy, it is required to
concentrate on strategical planning, organizational planning, and
financial planning of the company. The three important questions which
you must address to yourself about your business before writing the plan
are: to whom, by when, and for how much.
Writing the Exit Strategy
Choose the Best Exit Strategy for your Business
Selling the business to a family member.
Selling the business to other company, which is usually larger than yours (acquisition and merger).
Selling the business to Employee Stock Ownership Plan (ESOP), in
which the stocks of the company is sold to the employees of the company
itself.
Initial Public offering (IPO) is a risky strategy in
which the stocks of the company are sold to the public. The investors
need to take a risk because the traders get in (buy stocks) and out
(sell stocks) and may cause a financial swing.
If none of the plan works out, the business owner may have to resort to liquidation.
Write Down the Questionnaire Document
How much investable assets should I have in my account?
What would be the tax impact on the amount that I would receive after I quit?
What are the legal agreements that I should sign before I complete the disposal?
Does my business have the required opportunities and value from the view of the buyer?
How can I clear my debts, successfully?
Financing your Business
Choosing
the source of capital is very important, as it will directly influence
your decision to exit. The objective of choosing your financing is not
only about increasing the funds, but it also concerns the cost of both
money and relationships, if you are borrowing the money from your family
or friends.
Dealing with the Taxing and Other Legal Issues
Discuss
the legal and tax related issues with an experienced corporate attorney
and other business accounting professionals. Some of the legal and tax
issues that you must discuss with your advisors are listed below:
Legal Issues
Liability of Owners, officers and directors
State and federal security laws
Rights of minority owners
Cost of transfer of ownership
Buy-sell agreements with shareholders and partners
Tax Issues
Capital gains upon transfer or sale of the business
Corporate and personal taxes
Properties owned
Reasonable compensation limits
Retirement plans
Income tax
Capital Gains Tax (CGT) tax
Actions that Should be Implemented Before Exiting
Begin
the planning and the implementations, once you have set the timeline.
Implement the following actions before finalizing the agreements and the
complete disposal.
Train the new managers.
Start your debt reduction program.
Update your business plan.
Dispose the loss-making subsidiaries and surplus machinery.
Approach venture capital backing for MBO (Management Buyouts).
Discuss the propositions with the concerned bank management.
Appoint lead adviser.
Conduct environmental audit.
Reduce the stock levels of your company.
Review personal financial positions.
Undertake mock due diligence.
Most importantly, plan the activities to get engaged after your exit from the business.
Planning
out your exit strategy at the last minute will never be helpful,
because, all the factors required for your successful exit will not fall
in line. Also, finding out a buyer in a short period and disposing the
assets quickly will not fetch you the desired profits. So, planning
ahead is necessary
