The Cerius Guide to a Successful Exit Strategy: What You Cannot Afford NOT to Know – Part 3

This is Part 3 of a three part series. Click here for Part 1 and Part 2.

You have worked hard to build a company. But now what? The “next steps” for your company can vary greatly — possibly an initial public offering, approaching private equity groups for a cash infusion, or perhaps selling the company, maybe to a partner or key employee through a buy-out or cash out. This paper focuses on the importance of thoughtful preparation when that next step is selling your business — and the serious ramifications to your company’s value if you do not prepare.

There is a direct correlation between preparedness and maximizing the value of your company. You want to get the reward from your efforts that you deserve and you certainly want to avoid leaving money on the table. In addition there are personal considerations — you want to avoid partner or family conflicts, keep employees happy, and leave a legacy you can justifiably be proud of. To be prepared, are the top sandtraps to avoid:

• Unstable or poorly balanced revenue flow,
• Poor tax planning,
• Improper understanding of market and market dynamics,
• Lack of accounting and operational excellence,
• Under — or over — valuation of your business, and
• Lack of a plan for your own future role in the company.

Below we will review the first two in detail. You can click here for Part 1 and Part 2 in our series.

Guide to a Successful Exit: Unstable or Poorly Balanced Revenue Flow

It goes without saying that investors or acquirers of your company want to know that it will continue to maintain and increase that value after their investment or acquisition. Paramount here is solid and predictable revenue based on recurring business, stable customers, and a healthy balance of repeat sales and new customer acquisition. Too heavy a dependence on one or two key customers, sales that are opportunistic, or sales that involve unique deliverables that depend too much on one or two key individuals are risky — and may not survive the transition.

A team of professional advisors can help you analyze your current revenue and revenue forecasts, and determine the best steps to prepare forecasts that create enthusiasm among potential acquirers.

Guide to a Successful Exit: Poor Tax Planning

Whether you are cashing out of a family business or selling your share of the company to a team of partners, know that the tax implications of each choice need to be identified well before you begin. The detail of taxation is well beyond the scope of this paper, but plan on a qualified tax professional to give you appropriate guidance. Whether you are looking at the financial or estate planning that may precede a retirement-instigated cash out, or the taxation effects of a sale to family, partners, or employees, this is one place you cannot afford to leave decisions to chance. Perhaps your sale is structured to give you recurring revenue from the business over time rather than a one-time cash out. Different exit models have varying tax ramifications; rely on an expert to ensure the best approach that will preserve as much of your hard-earned capital as possible.