A Letter to Business Owners on How to Create an Exit Strategy
Posted by Betsy Brottlund on December 12, 2008 in Business Management [ 0 Comments ]
Each week at Resource Nation, PR agencies and companies submit hundreds of articles to us for a chance to get published on our site. From advice to entrepreneurs on how to buy a phone system to updated news regarding text messaging laws, we see it all.
Recently, Bob O’Hara from O’Hara and Company sent us a letter. In this letter, he advises entrepreneurs how to form an exit strategy before actually calling it quits. In this economy, it’s a good read and one worth looking at:
AN OPEN LETTER TO BUSINESS OWNERS
Dear Business Owner:
We are in difficult economic times and many business owners are being faced with numerous challenges in this economy. So I am sure many of you are thinking, “This is not the time for me to be concerned about Exit Planning.” However, I believe this is exactly the time for you to create or address your Exit Strategy. I believe that planning is more vital than ever. You should not only plan for how to make it through the difficult times, but also evaluate how your strategies will help you grow and build sustainable value for the long term.
I’ve given much thought to the challenges that business owners are facing. I have several ideas about helping you and your company to stay on track to achieve your Exit Goals. Here are some ideas to consider:
- Increase business value by designing incentive plans for your management team that reward long-term employment and provide short-term incentives to increase your bottom line. Get your key employees on the same page as you and have them help you build business value.
- This may be the perfect time to acquire smaller, less adaptable, less capitalized or less well-managed competitors. Certainly, this is a buyer’s market and there are ways to help minimize your financial exposure.
- The time to preserve the value of your most important asset – your company – is now. Look at how you can minimize tax exposure and how to protect your company from unexpected risks, for example, the departure of a key employee. Look at ways to protect your trade secrets, customer lists, vendor relationships and referral sources.
- If you are planning on selling your business to a third party, there may not be many more peaks in the mergers and acquisition market place before you reach your desired retirement age. So it is beneficial to plan for how you will have your business positioned and ready for sale when the economy rebounds. Just like any stock, you want to sell your business when it is growing and on the upside of the growth curve.
- If you have planned an ownership transfer to your children, look at the timetable. Assuming your children are nearing the appropriate age and experience, now may be the perfect time to begin that transfer. With a reduced business value due to current economic conditions, it may be financially easier for you to transfer the Company to your children and achieve your objectives.
- If transferring your Company to your employees is your preferred exit route, this may be the optimal time to begin that transfer. With a potentially lower business value, if you decide to bonus your key employees stock of the Company, you can do so with minimal effect on cash flow and a lower tax impact on your key employees. You can bonus stock, still retain control and simultaneously motivate key employees to stay with the Company.
- Make sure your contingency plan is up-to-date. This is the perfect time to review what plans you have in place to insure the business can succeed without you if the unexpected was to happen.
- Prepare a comprehensive personal financial plan, evaluate the current state of your personal affairs and determine what you need to do to secure your personal financial future.
Don’t stand impassively on the sidelines during a time of economic volatility. Unlike the “average” investor, you are not limited to the single strategy of pulling dwindling assets out of themarket. Even if the general economy suffers, your business profitability need not. Look at your alternatives and get to work.
Best wishes for continued success!