There is no doubt that exit planning and its execution are complex and challenging. The exit planning is critical and can save the seller a significant amount of funds. With a fifteen-month plan to exit your business with the proper planning and execution – the seller should be able to add another 30% to his / her net proceeds. This is possible because it:
Provides you with the time to properly “clean-up” the balance sheet;
Eliminates unnecessary costs. Remember that each dollar you save or add will within the next 18 months generate a significant result. For example, if the company has a valuation multiple of 6, then every dollar improvement in EBITDA generates you, the owner, 6 dollars. This is not a bad ROI. The general pitfall is there are “too many sacred cows”;
Allows the inventory to be optimized;
Assures you have the right team. Too many low / middle market companies do not have the bench strength once the owner leaves. Or even worse, the bench strength comes from family members. Develop a team knowing the short-term and long-term strategy and share the upside opportunity with them. If done properly, these key individuals will generate their savings several fold in comparison to the costs;
Incentivizes all the key players to ensure everyone is on the same page; and
Gives you time to meet with your tax advisor very early in the process to ensure you minimize your tax exposures and / or obligations. Ensure that your tax advisor is an expert in the M&A phases of business. This is a very complex set of transactions – this is not the time to have an inexperienced player. After all – this business sale may be the most important financial transaction in your life.
From a tax perspective, you, the owner, should have a solution to the following tax issues:
What Type of Entity Do You Use to Conduct Your Business?
Is a Tax-Free Deal Possible?
Are You Selling Assets or Stock?
Allocation of Purchase Price is Critical.
Other Payments to Sellers; Personal Goodwill.
Installment Sales (Seller Financing) and Escrows.
Earnout/Contingent Payments.
Outstanding Stock Options.
State and Local Tax Issues.
Pre-Sale Estate Planning.