Two failed attempts to sell my business taught me that I needed a formal exit plan, rather than a vague notice that some day I'd sell the company and live happily ever after. In both cases, I would have been required to continue as an employee after the sale, and I knew I did not have the desire or personality to become an employee in my own company. With professional help, we included a flexible exit strategy called "Plan A, Plan B & Plan C" in the strategic plan.
Plan A, the first choice, was to transfer ownership to the management team. So we started stock subscription plan through payroll deductions and bonuses – they owned 35 percent of the stock when the company was sold. As part of strategic planning, we created a brand to differentiate us from competitors, set annual and 3-year growth goals, and designing procedures. The management team also participates in Board of Directors meetings, one as a member and the others as regular presenters. Experts evaluated our business and defined 17 factors (download them from the website) that determined how much it was worth. Unfortunately, when the time came to secure the loan to buy 100% ownership interest, the management team decided they were not willing to sign personal guarantees.
That possibility was anticipated in Plan B, the # 2 preference. Plan B was to sell the company stock to a strategic buyer who could parlay the company's client base into rapid growth or to a financial buyer who would use it as a platform for an IPO or roll-up. We were confident that Plan B would succeed because we had been approached frequently by potential buyers and our area was government services, a hot market after 9/11. I also attended seminars to learn what buyers were looking for, and took action to maximize the company's value and eliminate the "warts" – things that cause buyer concerns.
If we did not find a third-party buyer who offered an acceptable price, we intended to implement Plan C – I would retire from day-to-day activities and direct operations as Chairman of the Board. Since the business was a subchapter-S corporation, my income would come from earnings. To prepare for Plan C, I began to work part time. First four days a week, then three days, and finally two days a week at the time the company was sold. I trained the management team to plan strategies, negotiate contracts, and make hiring decisions. We also implemented cash management procedures to ensure there would be sufficient cash to support Plan C.
Actually, our preparations for Plan A, Plan B, and Plan C were good for the company in general. For example, building a management team strong enough to buy the company was essential for Plan A, plus it was valued highly by the eventual third-party buyer (Plan B) and would have been vital if I retired from daily activities (Plan C) . Similarly, the cash management process so important in Plan C yielded a balance sheet that supported bank financing for a management buyout (Plan A) and produced attractive cash flow for potential buyers.
Something like an ABC strategy would be useful for your exit too. One way or another, some day you will leave your company – willing or unwillingly, alive or dead. Once you take the plunge and become a business owner, there are just six exit options:
(1) Transfer ownership to family member (s),
(2) Sell the company to an employee (s)
(3) Sell the company to an outsider,
(4) Become an absentee owner,
[5] Liquidate the company (ie, sell assets individually), or
(6) Run the company until you die.
You may choose any option (s) you like, and each option has multiple variants. But if you fail to make a choice, by default you are choosing option (6). If you choose several alternatives like I did, you can order them as first choice, second choice, etcetera. It turns out that things you do to prepare for your top alternative will also help most of the other options. The important thing is to begin planning your exit strategy and timetable long before your target exit date.
