ARTICLES

Exiting Your Business

by Carolyn Herfurth and Benjamin R. Skjold, Esq.

Like snowflakes, each owner's exit is unique in its form, but the core elements of the exit are always the same. Exiting a business is not like selling a car; rather, it involves the emotional attachment to the business along with the financial and legal details that require a team of professionals. The following are five steps an exiting owner must address to achieve a successful sale.

Step 1: The Owner's Personal Goals.

The exiting owner's goal should seem obvious – make the most money after taxes and fees. Often, however, it isn't that simple because owners have raised their business from infancy and typically do care about who will take the reigns. Family members and other important employees are usually involved in the business. Consequently, a calculation must be made between an immediate payment that may not benefit the present employees versus the owner financing a sale to management or family members.

Step 2: A Range of Values Exist for the Business

The value of a privately-held business depends largely upon the buyer and the type of financing involved. Value or the "net transfer price" will fall in a range based upon whether the sale involves insiders or third parties. Insiders are present management or family members who typically have fewer dollars upfront, but allow for greater control of the business, continued income and flexible timing and tax characterization of payments to the exiting owner. While a sale to a third party may provide a large upfront cash payment, the owner relinquishes control over the business, and the timing and tax characterization of payments.

Step 3: Examine the Options Available for the Sale

Potential purchasers may range from a competitor, to venture capitalists, family members or even present management. Each potential purchaser will bring a different net transfer price. Based upon the exiting owner's goals, both emotional and financial, this must guide the search for the appropriate purchaser with an acceptable net transfer price. This is a difficult exercise, but if there is a match, congratulations! A successful business exit strategy has been devised.

Step 4: Full Financial Disclosure

Assembling accurate and detailed financial records and presenting them to a buyer/successor is time consuming and can present a huge psychological block for many exiting owners. A savvy buyer will demand this financial information and potentially use it to lower the purchase price if there are errors or if detail is not available. When an owner must explain the accounting methodology employed over the years to help build wealth and reduce tax bills, the process goes smoother when there is a detailed financial record to explain cash flow. An old saying rings true, "if the truth will kill a deal, then there is no deal."

Step 5: Assemble Your Advisory Team - Don't Go It Alone

Business owners are independent self-starters. However, these strengths can lead many owners to attempt the "do-it-yourself" business exit strategy. This can equal lost value due to improperly managed risk, the failure of secure assets or unnecessary taxes.

Co-author Carolyn Herfurth leads The Biztruth, LLC. Visit the website at www.thebiztruth.com for more information.