There are several types of exit strategies business owners can consider when transitioning out of their business. Merger and acquisition (M&A) transactions are a strong choice for exiting on your own terms and potentially at a competitive price. Here’s a guide on your options when creating your business exit strategy and why an M&A transaction can be the best move for you.
Interested in getting help with selling your business? Contact Clare Advisors to match with an M&A advisor that will help you reach your goals.
What Is a Business Exit Strategy?
A business exit strategy is a plan you make to prepare yourself, your employees, and your agency for when you are ready to transition out of the organization.
Your business exit strategy will include both business tasks and goals and plans for yourself. On the personal side, you need to look ahead to what you are willing to do / will do after the deal closes. You should ask yourself the following questions:
- Do you plan of leaving immediately?
- Or are you willing to stay on for a certain period of time?
- If you’re considering retiring from your business, what number at closing and/or at the end of the earnout period will you make you comfortable enough to sell the agency?
- If you decide to dissolve it, will the amount you get to keep at closing being enough for you to at a certain point in time?
It is also helpful to plan for the emotional toll that leaving / stepping away from your business could have on you. If you have been running it since the beginning, it may be hard to hand over some or all of the reins to the new buyer. If you have a second tier of management that will stay on with the agency post-acquisition, consider including a plan that allows them to handle more operational and cultural matters over time. If you no longer have to handle the day-to-day operations and issues of the agency, the transition will be smoother.
Having a plan to ensure that all operations and procedures can run without you will not only be good for your and your employee’s transitions to new ownership, but also allow you to make gradual changes that will benefit you during and after the acquisition. For example, you could ask yourself the following questions to see where your agency stands in preparation for the sale:
- Do you have established systems in place?
- Are you prepared for future growth? How scalable is your agency?
- Are your financials doing well? Do your agency’s profit margins consistently look attractive?
- Do you have a senior management team that you can hand more of the reins to?
Since preparing to leave your business can take time, it’s important to plan and ensure that you have time to set your business and yourself up for success.
What Choices Do Business Owners Have When Leaving Their Company?
If you’re planning on leaving your business, you’ll need to figure out your best options. Some choices are: liquidate the business, sell it internally, or sell to a third party.
Depending on the type of sell-side transaction you choose, you can have anywhere from one buyer to a “full universe” of buyers to contact in the sale process. Depending on your personal and business needs and requirements, the process can also be highly customized or structured.
The following are a few options of what you can do when trying to plan your business exit strategy for retirement.
1. Liquidate Your Business
Liquidating your business has its advantages and disadvantages. When you liquidate your business, you’ll most likely be able to keep all the cash in the business. However, you will have to terminate all of your employees. Additionally, there are typically many complexities and expenses when it comes to closing your business and dissolving the organization.
2. Make an Internal Sale
Another option you may consider is an internal sale. This means you’re selling your business to one or more of your key employees. This can greatly benefit your business and the staff as they already know your business’s nuances, culture, and operations, and can proceed as before, carrying on the legacy of the organization.
However, your key employee(s) would have to have both a risk appetite and the means to buy the business from you. This type of sale may only come around if you have employees that have expressed an interest in acquiring your agency or taking on more leadership roles. If you have a candidate or that has the interest and the means, this could be a good option.
3. Complete a Third-Party Sale
As stated earlier in the blog, a third-party sale tends to give you the most visibility on what to expect for yourself, your employees, and your business. Putting together a business exit strategy for a third-party sale will give you time to prepare for a sale at an opportune moment – when your business has the most revenue and profit growth momentum. It also allows you time to include a potential earnout in the total time you can give yourself to fully exit your business.
This type of sale allows your staff to continue employment and allows them room for new opportunities as well. It can also help with the continuity of your brand – liquidating the company would made the brand disappear. A third-party sale would also allow you to realize the potential maximum or full value of your business in a competitive process.
Are you interested in getting help finding the right buyer? Contact Clare Advisors today to get help through the whole M&A process!
What Are the Disadvantages of a Sale-Side Process?
Depending on the type of sell-side process you choose, some of the disadvantages of a sale-side process can include:
- The sale process can take up to 12 months (sometimes even longer) if negotiating with multiple or unsophisticated buyers.
- The process requires a great deal of time from you and your management team.
- Agency owners often remain employed or involved in the business for an earnout period after the transaction closes.
While these disadvantages can take up some time, the benefit of selling your business can outweigh the challenges. And when the plan is created and executed years before your retirement, it allows you plenty of time to gauge when is the best time to sell. You also have the opportunity to work with an M&A advisor that will help smooth the whole sell-side process.
How Can an M&A Advisor Help You?
Whether agency owners are retiring from their business, the industry, or the workforce, a merger or acquisition allows the owner to prepare for a sale, give themselves time to go through a sale process and earnout, and then have time to do whatever else they want to do.
And the great thing is, you don’t have to do it alone. If you’re unsure how to complete a sell-side transaction, Clare Advisors has fantastic M&A advisory services that will help you from beginning to end.
We have decades of experience in mergers and acquisitions in the marketing and advertising industry. No matter the sale type, we can help your agency be in the best position for a smooth transaction. The best time to reach out to an M&A advisor is when you’re getting ready to plan your business exit strategy so you can get help from day one. If you’re interested in getting assistance through your sell-side transaction, we can help.
Are you ready to start your M&A journey? Contact Clare Advisors today to get started!