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Exit Planning Do It Right The First Time

Dec 17, 2009

All business owners can expect to exit at some point.  You should begin to lay the groundwork for such a transaction long before the actual sale.  Proper planning and execution at each stage will lead to clearer objectives, higher value and fewer obstacles at settlement

Some best practices and considerations in planning your exit:

Strategy - Determine the key factors that might impact the execution of the sale transaction.  Answer the following questions, among others:

  • What is the structure you prefer for the transaction - 100% sale or a fraction of the shares?
  • If fractional sale - are you willing to forfeit operating control?
  • What is the time frame that you want the transaction to occur?
  • Do you (or other key employees) desire to stay post settlement?
  • Are any key assets (employees, clients, vendors, Joint Venture partners, etc) at risk of leaving in the event of a change of control?
  • Proceeds - is an earn-out acceptable or must the transaction be structured so that most of the proceeds come at settlement?
  • Must proceeds be in cash or are you willing to accept equity in the acquiring company?


Preparation - It is important that the entity that is the target of the transaction has reliable financial and operational information which is produced regularly. This will serve multiple purposes.

  • It will enable the seller and other parties to clearly understand the performance of the business.
  • It will help to ensure that a repository of data is always available in the event that a buyer wants to perform financial due diligence.
  • Reliable and clear operational and financial data will give the buyer confidence that he knows what he is getting and will increase the likelihood that the transaction will be executed in a timely manner.


Analysis - Accurate and reliable financial and operation information will let you and your advisors study your business and understand its dynamics. It may also bring to light items which are "less than arm's length" which could have purchase price implications, such as:

  • Vendor relationships - for instance, is rent reflected for a family owned real estate that is used by the business.
  • Salaries of owners - Are they at arm's length? What are the ramifications of adjusting the salaries to arm's length salaries - does this increase or decrease potential purchase price?
  • Balance sheet - Are there assets on the books that are valued on a historical basis that need to be properly adjusted to reflect market prices? Is there excess cash or working capital that is not necessary to the operation of the business - don't leave it there for the seller - consider paying a dividend so that no excess net worth is left in the business.  This could effectively increase your purchase price.


Execution
- To begin executing the sales process, make sure that you have a stellar team of advisors.

  • One of these advisors should be a B2B CFO® partner who can provide you with the financial, operational and strategic advice that you need to maximize the operation of your business and to make exceptional transactions like a sale or purchase as effortless as possible.
  • You will also need a merger and acquisition specialist - use a quality advisor like the Woodbridge Group , an M&A advisor and a  B2B CFO® strategic partner, that has a worldwide footprint. They can help you clarify your transaction criteria and help execute an efficient search and sale transaction.


B2B CFO® has a strategy for just such an engagement called "Finding the Exit."  This program has been specifically designed for our clients to help them navigate this challenging path.  Make sure that you maximize the proceeds from a "once in a lifetime" sale of your business.

The inclusion of a B2B CFO®  partner onto your senior team can give you the financial expertise and strategic insight that you need to maximize the performance of your operation.   Our partners, who have over 2500 years of cumulative experience, (including significant merger and acquisition related experience) are part of the largest US firm providing services on a part-time basis to closely-held companies with annual revenues of as much as US$75 million.

More from David Kirkup…

About the Author

David has over two and a half decades of business experience and is a proven financial management expert. Working in Europe and the USA, David has served as Divisional CFO at a number of Fortune 500 corporations: including Reuters, Marsh & McClennan, Zurich Insurance and ADP as well as numerous small and mid size companies. As part owner of a small software company, he was heavily involved in the marketing efforts and ultimate sale of the company. As CFO with a national PEO firm he dealt with the credit and financial issues facing hundreds of small business clients. David also spent 5 years in Bermuda managing captive insurance companies.

View David’s Personal Website

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