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Exit Strategy

Tags: selling a business

Comments & Replies: 1     Views:     Post ID:     Comments About This Glossary Term

Some business owners, when asked about their exit strategy, aren't sure how to answer because they don't know what that means. The question, if posed another way, asks: "What are you going to do with your business when you don't want to own it anymore?"

It's surprising how many business owners have not given this topic much thought. Yet they will have to confront it some day when they no longer have the interest or the energy needed to operate the company.

For some people who have not developed a strategy and then discover they are too ill to continue running a business, the only option might be to hold a going-out-of -business sale, then close the doors. Among the consequences of that scenario is that the owner probably will receive a fraction of the money the business might be worth as an ongoing concern purchased by a new owner. And if the premises or some of the equipment are being leased for operation of the business, the owner may find he or she continues to be responsible for those and other financial obligations, without the business income to cover those costs.

Many individuals who find themselves in this predicament might have avoided it by developing an exit strategy.

One beginning step in creating the strategy is to talk with professionals: a lawyer, accountant and one or more business intermediaries about the best way to prepare the company to be purchased and to find someone who wants to buy it. That means assembling the company's financial reports going back a few years to show to prospective purchasers, working with lessors to learn how (and whether) the leases can be transferred to a new owner, preparing a business plan to show prospective buyers how they can increase profitability, determining the right price and terms on which to make a sale, and deciding when might be the best time to implement the plan.

Whether the exit strategy is complex or simple depends on the type of business and the needs of the owner in post-sale years. More complex strategies, for example, might involve an ESOP (employee stock option program), an extended transition plan, or selling to a family member, friend or even a competitor.

Every business owner is advised to develop an exit strategy, even if it's years before it will be used.

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