There’s no hiding that uncertain times are ahead. Is it time to consider selling your Company?
If you are not getting the financial results that you want or if you feel like the weight of the world is on your shoulders, consider what it takes to get unstuck or the pros and cons of exiting. Passing the torch in your business allows you to start something new, retire, or half-retire.
Likewise building a valuable business that is both profitable and transferable gives CEOs the option to get paid twice when they pass the torch to the next owner.
Formulating an Exit Strategy
All that sounds great, but how do you actualize this plan? First, you’ll need an exit strategy. This plan outlines how you’ll make the transition and whether your goal is to sell your business, sell with an agreement to stay on called an Earn-Out Period, or other options that may be available to you.
Think about the startup plan your business followed in its infancy. An exit plan functions very similarly and is just as important. Similarly, both these plans don’t exist in a vacuum and are tailored toward your business, its strengths, and its weaknesses. You’ll want to consider several factors when drafting the plan such as the growth of the business, your priorities, and market conditions.
Don’t rush hastily into this project, for the value of your Company may be the largest asset you own. There are various strategies that might work well depending on your situation, and you’ll want to evaluate each for lifestyle and financial impact before putting the exit strategy in motion.
We’ve worked with countless business owners, helping them identify a plan that makes sense to them. Regardless of if you’re exiting next week or predicting an exit for a few months or years down the line, the sooner, you start with the end in mind the better.
Seven Tried and True Exit Strategies
- Next of Kin Takes Over
If you’re fortunate to have children or other family members who share the same goals and aspirations as you, this might be an easy choice. Leaving your business to an heir allows you to rest comfortably with the knowledge that your business and its values might live on in distinctly different but familiar hands. Get them started early to work at various levels in the business to gain mastery by earning it. - Management Buyout
In an internal buyout, you can pass your company to trusted managers or employees who will dedicate themselves to carrying on your business. Similar to family succession, many CEOs favor this option as it makes them feel secure that familiar people – who are invested in the business’s success – now get a chance to drive. Often, this avoids having to onboard an entirely new management team with your industry, a process that can take plenty of time. In this case, Employee Stock Ownership Plan (ESOP) or Management Buyouts (MBOs) are worth assessing. - Employee Stock Ownership Program
ESOP is a powerful business model that gives you multiple options to take your business, community, and employees to the next level. This is a great way to boost employee morale while accelerating the growth of your company. Ultimately, EO gives your employees a stake in your business. As full or part-time owners, this allows them to take a hands-on approach while you release some of your major responsibilities as CEO or owner (leaving the role in the good hands of your trusted employees). - Sell to a Third Party
If you’re fortunate enough to be in the situation, you can sell your company to a third-party buyer. The goal is to sell to a strategic buyer instead of a financial buyer because they value what you built to use your uniqueness and will pay more for it. There are a few types of acquisitions to consider:- Horizontal: with a company in the same industry
- Vertical: with a company in the same supply chain
- Conglomerate: with a business unlike yours in relatively any aspect
- Market Extension: with a business that sells similar products in different markets
- Product Extension: with a business that sells unique products that work well with yours, amplifying each’s value
Selling to a third party requires more upfront work to be due diligence ready, but the payoff can be substantially larger.
- Half Retire – Hire a General Manager
To keep an income stream, hire a general manager or CEO to run the day-to-day business. This allows you to continue doing things that you love to do without the operational responsibilities. - Initial Public Offering (IPO)
Otherwise known as “going public,” an IPO allows your company to offer its shares to stakeholders. You can do partial or full liquidity. This can yield lucrative results, but you need some precise circumstances and conditions for true success. Plus the investment to go publish and the need to be due diligence ready is substantial. Unfortunately, resounding success can be quite rare – especially for small to mid-sized businesses. SPAC’s – Special Purpose Acquisition Companies have been popular the past few years and could also be worth considering. - Close – Sunset the Business
Sunsetting is an appealing option to most who just want to quit the business entirely. All operations come to a halt and you sell your assets. There’s hardly a simpler and quicker method to let go of your ties to a business, but while quick cash by selling assets seems appealing, this is not the best way to get a return on investment. You’ll want to make sure the payment you receive covers your debt and the payout to your shareholders.Roughly three out of four sunset their business in this manner. Sometimes CEOs think that they can’t sell their business when in fact they can. Either way, they give up the second payday for their hard work.
How to Choose an Exit Strategy
These actions will give you clarity and the capacity to follow through at exactly the right time.
- Build your success team
- Figure out what your number is to get paid twice?
- Assess the seven exit options for lifestyle and financial freedom impact
- Start meeting with subject matter experts for the top three early to learn
- Assess the short list of strategic buyers every year
- Be audit and due diligence ready
- Map out the implementation flight plan
How Foresight CFO Is Different from Other Outsourced CFO Services?
At Foresight CFO, we provide outsourced Growth CFO services tailored to meet your specific needs. We provide consummate operational and financial services aimed to grow your business through effective strategy and hands-on follow-through.
Let me know if you want to talk through exit options to start with the end in mind or get it done sooner versus later