Exit Strategy

Just as you needed a plan to get into business, you’ll need aplan to get out of it. Selling or otherwise disposing of a businessrequires some forethought, strategizing and careful implementation.In some ways, it’s a little more complicated than starting abusiness. For instance, while there’s really only one way to starta company, there are at least three primary methods forentrepreneurs to leave the businesses they founded: selling,merging and closing.

Deciding to sell the business you’ve worked so hard to grow israrely an easy decision. However, it may be the right one undersome common circumstances. Selling may be preferable to owningif:

• You’re ready to retire and have no heir to continue thecompany.
• Partners who own the business decide to dissolve theirpartnership.
• One of the owners dies or becomes disabled.
• You or another owner get divorced and need cash for asettlement.
• You want to do something more challenging, more fun or lessstressful.
• You don’t have enough working capital to keep going.
• The company needs new skills, a new approach or resources youcan’t provide.

If you’re aware of the factors that indicate selling is a goodidea, you can time the sale to take advantage of high prices.Usually, you’ll get the most for your company when sales areclimbing and profits are strong. If you have an unblemished historyof solid performance, by all means sell the company before troublestrikes. Other factors that may affect the timing of a sale areavailability of bank financing, interest rate trends, changes intax law and the general economic climate.

You can sell your business yourself, but many owners contractwith a professional business broker to handle the job. In additionto the training and awareness of relevant legal, tax and accountingconsiderations, a good reason to use a broker is to protect youranonymity and confidentiality. If you’re advertising your businessfor sale and showing it to prospects, it compromises your abilityto continue leading the firm. A broker can front for you, screeningprospects and keeping the identity of the business owner secretfrom all but qualified buyers.

Most business buyers are individuals like you who want to becomesmall-business owners. But sometimes you can transfer ownership ofa business to another business in a merger or acquisition. As arule, businesses have deeper pockets and borrowing power thanindividuals, and they may be willing to pay more than individuals.Businesses also tend to be more savvy buyers than individuals,increasing the chances your business will survive, albeit perhapsas a division or subsidiary of another company. However, businessescan’t move as fast as individuals. It may take you a year or moreto get your company ready to be merged or acquired. During thattime, you’ll need to:

• Clean up the balance sheet.
• Drop poorly performing products.
• Terminate insider deals, such as property the company isrenting from you or family members.
• Trim excessive fringe benefits.
• Make sure you’re paid up on all taxes.
• Have at least two years’ worth of audited financialstatements.

The best candidate for a merger is a company that sees yours asa strategic fit with their own firm. If you have something theywant and can’t find elsewhere, such as a unique product ordistribution channel, they may be willing to pay a premium price. Acompetitor who only wants to put you out of business is usually apoor merger prospect, however. This buyer is motivated only byprice and probably isn’t interested in preserving the business.

Sometimes, the best thing to do is simply sell your inventoryand fixtures, pay your creditors and employees, close your doors,and walk away. Closing may be the best option if your business isfailing, isn’t valuable enough for anyone to want to acquire it, oris the type of business that’s unlikely to be valuable without youpersonally operating it. (A law office is a good example of this.)If you can’t raise enough money by disposing of your assets to payeveryone off, you can give them what you have and promise to paythem the rest later on. You can usually avoid legal wrangles if thedebts are small enough.

Variations on this theme include making formal or informalarrangements to pay off your creditors, filing for voluntaryliquidation, and declaring bankruptcy. Only bankruptcy is intendedto give you a second chance. The others are almost certain toresult in the end of your business.