Strategic Thinking

The End Is Inevitable

By Erica Olsen ⋅ September 27, 2007 ⋅  Email this post ⋅  Print this post ⋅ Post a comment

Along with the discussions of scenario and continuity planning
we’ve had in the past few weeks, there is another topic that is
deserving of your attention especially if you are an entrepreneur or
department/division/group manager. Exit strategy
activities are key parts of any organization’s strategic direction
because they dictate how the business is set up for the long run and
who will run the business when you depart.

Although
publicly-traded companies get all the media limelight, roughly 90
percent of US businesses are privately held. Yet, only about a quarter
of businesses with less than $200 million in sales have a formal
exit/succession plan. Business owners, in particular, have some special
considerations in their planning efforts:

• How will your business continue when you exit stage left?
• How do you establish the value or projected value of your business?

Each
of these topics influences the strategic direction of a company. While
it may be difficult to think about life after your company, it is
arguably the most important part of your strategic planning effort. And
while you may not want to share your ideas with your staff, you should
still have a clear plan for your departure.

The best time
to start planning the exit strategy is when your venture is launched or
purchased. Any number of front-end decisions and strategies can have
long-term impact on the operations. This week our focus is on the first
phase of your transition - exit planning - which directs how to
transfer the business when you leave. There are basically four ways to
exit your business:

1. Transfer ownership to a family member
2. Sell to employees or other owners
3. Sell to a third party
4. Liquidate

While
each one of these requires a unique strategy, you have the same
critical considerations to ponder as you develop your exit plan:

• Timing: You need to decide when the right
  time is based on your business life cycle.
• Value: Get an outside valuation of your
  business so you won’t be surprised when you’re ready to exit.
• Succession or sale: What is the appropriate selection process or training sequence to prepare for a smooth transition?
• Income tax considerations: Talk to your CPA about maximizing value while also reducing income taxes.
• Separate self (management) from the investment: How will you separate yourself from the value of the business?
• Purpose beyond business: Have a plan for what you’ll do without your current daily activities.