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Exit Strategies and Maximizing Enterprise Value


With Baby Boomers reaching retirement age, 65% to 75% of all small businesses in the US will transition ownership in the next five to ten years. If you have spent your life building up your business, selling the company will likely be the most significant financial event of your life. It is important to start thinking about your exit strategy early, so that you can fully meet your business and personal goals.


Exit options


Early in the process of creating your exit strategy, it is important to consider different means of exiting your company. Here are a few options:

 

  • Family succession – Pass the company on to family members by either gifting or selling interests in the company. You can utilize the annual gift tax exclusions to give interests over several years.
  • Management buyout – This route could provide a smooth transition because there may be a small learning curve for the new owners. It can help motivate key employees and avoids the expense of finding an outside buyer.
  • Employee Stock Ownership Plan (ESOP) – Employees purchase the company through a qualified retirement plan. This can be an effective way to sell your company and reward valued employees at the same time.
  • Third-party acquisition – Often allows you to sell at a premium. Selling to an outsider means that you will need to plan ahead to position your company for its highest selling price.

Maximizing value


In addition to considering various exit options, maximizing enterprise value is often a significant driver in exit strategies. The following are a few ideas to consider:

  • Build and develop a strong management team. Potential buyers want to know that there is an effective management team in place who can continue the company’s profitability after you exit the business.
  • Scrub the company’s books and establish sound accounting and internal control policies.
  • Get a valuation of your company. This can help you know where you stand and identify areas to improve to increase your company’s value over the next few years.

 

  • Assemble a team of trusted advisors. As you work towards selling your business, you will need to work closely with your accountants, lawyers, and bankers. Plan ahead and build a strong relationship with these professionals so they can understand your goals.
  • Stay focused on the business operations as you approach your exit. The last thing you want to do is neglect your operations while selling your company. A slump in profitability at the end could harm your business’s value to potential buyers.


Exiting your company is a major endeavor, and you need to begin preparing well in advance. While thinking through all the related nuances can be daunting, we are here to help ease some of that burden. Contact us to learn more about posturing your business for sale, firming-up your company's financial reporting, assembling a team of expert advisors, planning for the financial and tax related aspects of your transaction, and help in solidifying and magnifying the legacy you have created.