As the owner of a privately held business, your company represents your biggest and most important asset. The difference between planned and unplanned exit can be very significant.
First, understand that as the owner of a privately held business, you have two key roles – CEO and shareholder. As CEO, your job is to make the best decisions for the business. As shareholder, your job is to make the best decisions about your investment. When it comes time to exit the business, these two roles often do not coincide. Effective exit planning must therefore take into account the differing needs of each role
It helps to understand the key principles of exit planning:
1. Understand the full extent of business exit planning.
Exit planning encompasses a wide range of activities that include:
Deciding how, when and to whom to sell the business
- Identifying a successor if you intend to transfer rather than sell
- Determining what you will do with our life when you no longer own/run the company
- Taking steps to maximize and protect your assets (estate planning)
Business exit planning is a process, not a one-time event. Depending on the owner and the state of the business, it can take several years to develop an exit plan. Once in place, it should be revisited on a regular basis as business and life circumstances change.
2. Separate the job from the investment.
Exit planning for the CEO involves figuring out what to do after the business. Exit planning for the Shareholder involves turning an illiquid investment into cash and investing it in something else. In a successful exit, each role accomplishes its separate goals.
3. Position for the transaction.
Selling a business is much like selling a home – in order to receive full value, you have to get it in top shape. Because positioning a business for sale can take several years. Manage the company to maximize shareholder value rather than just top-line growth. By focusing on the areas needed to maximize value, you automatically keep the business in shape to sell.
4. Time your exit.
Receiving maximum value for your business requires selling at the right time, which means paying attention to market and business conditions. Market conditions encompass things like interest rates, merger and acquisition trends and the availability of investment capital. Business conditions have to do with your frame of mind in regard to running the business.
5. Make sure that you have an expert in selling the business with the least tax consequences.
Most business owners know a lot about running a business, but very little about tax planning. There are numerous tax planning strategies and estate planning strategies that can save an owner millions in taxes.
Exit planning requires hiring a team of experts familiar with the markets and business cycles and tax strategies. With proper planning, you can achieve the maximum after tax results.
For more information on how Kardia can help you exit your business, please contact us or call 303-752-0590.