Exit Strategy Development
For private company owners, managing a successful exit from their company is perhaps the single most important event in the historical growth and maturity of the company. Exit Strategy Development is the process of preparing for the future ownership transfer of your company to others. A well thought out exit plan, with written goals, values, and objectives is indispensable to the transfer of the company and achievement of the shareholder’s long-term goals.
First Business Resources, Inc. will neutrally assess each probable exit strategy and recommend the most realistic exit plan with focused regard to the company’s current circumstances, the specific requirements of the shareholders, and the interests of management and employees.
"Despite the fact that private business owners have 75% of their net worth tied up in their business, 85% of all these owners do not have a defined exit strategy."
Recommended article: "Do You Have an Exit Plan?"
Shown below, are the most common exit strategies for private company owners to consider along with brief advantages and disadvantages of each.
Sale of Company to Strategic Company:
- Description: Business purchased outright by another existing company
- Advantages: Often purchased by strategic partner or competitor; management contract can be negotiated
- Disadvantages: Separate corporate cultures must be successfully integrated; potential management changes; corporate identity may disappear
Sale of Company:
- Description: Business bought by other individuals or entities
- Advantages: Normally sell 100% of company; post transaction involvement is minimized
- Disadvantages: Must find willing and qualified buyer; normally results in new management
Shareholder or Management Buy-Out:
- Description: One or more stockholders buy out the others or existing management purchases company
- Advantages: Normally sell 100% of company; other owners/management remain in control of the company; corporate identity and employee base remains primarily intact
- Disadvantages: Seller must be willing; buyers must have sufficient cash to complete transaction
- Description: Join an existing company
- Advantages: Corporate resources are combined; current management may stay
- Disadvantages: New partners or management, less control, may receive little or no cash
- Description: The company is passed on to the heirs during the owner's lifetime or at death
- Advantages: Continuity of ownership; additional estate planning options
- Disadvantages: The desire or capability of family members to "run" and "expand" the company
Employee Stock Ownership Plan:
- Description: A qualified, defined employee benefit plan that invests primarily in the stock of the employer company
- Advantages: Provides a ready market for the sale of the company stock
- Disadvantages: Corporate governance issues; regulatory requirements; the expense of an ESOP may be cost prohibitive for smaller companies
- First Business Resources can recommend an ESOP specialist to its clients to evaluate and implement this type of exit strategy.