Business Brokers BC Blog

Here are 10 exit planning mistakes for businesses that can be avoided if well informed.

Thursday, October 21st, 2010

1. Timing – Waiting until you must sell

A common mistake made by the small to mid-sized business owner is failing to consider exit planning when things are going well for the company.

2. Reactive versus proactive – Waiting for deals to come to you

Waiting for the perfect deal is like waiting for a lottery win. You might get lucky, but don’t count on it. Finding the liquidity event that closely matches your objectives requires much time and effort.   Without deliberate planning and implementation, the probability of finding that finaldeal is very low.

3. Narrow focus – Not considering all liquidity options

Your ultimate liquidity event can take many forms. You may choose to exit the company in several stages or all at once. A common mistake is to view an outright sale of the company as the only option. However, some of the other liquidity options available to small and mid-sized business owners include:

  • Management Buy-Out
  • Initial Public Offering
  • Sale to a Financial Buyer
  • Sale to Strategic Buyer
  • Intra-Family Sale

4. Distraction – Taking your eye off the ball

Running a company is a full time job. Exit planning execution is also a full time job. So how do you do it? By utilising all the resources at your disposal. Remember, planning a successful exit may be the most significant event that ever takes place with your business, therefore get help from competent professionals and don’t take your eye off the goal and continue to successfully grow and manage your company.

5. Valuation – Not knowing what your company is worth

Knowing where you are now is a prerequisite of a comprehensive exit plan.

6. Thinking ahead – Lack of vision post exit

Many owners neglect exit planning out of fear of the unknown future. In other words, the question that plagues them is “What would I do if I didn’t have the business?” Proper exit planning encompasses addressing these types of personal issues. What do you want to do with your life apart from running the company? A complimentary question becomes: “How much money will it take to do what I want to do?” No exit planning process is complete without addressing these questions, and it is much easier to consider such issues well ahead of time.

7. Taxation – Not thoroughly planning for the impact of taxes

Exit planning without proper consideration of the tax ramifications of exit is short sighted. Proper planning considers how to minimize all taxes.

8. Resources – Not using professionals properly

Given the time constraints on business owners, it is imperative that you engage competent professionals to assist you in the exit planning process. Time is not the only factor however; expertise is perhaps a more important issue. You are expert in running your business – you would be ill-advised to let an advisor take over that role. Likewise, you would be asking for trouble if in your limited time you tried to become an expert in legal issues, accounting, taxation, deal-structuring, valuation, exit options, etc. Don’t try to do it all yourself, and be sure that the professionals you bring in to help you are competent and ethical.

9. Lack of deal experience – Understanding the time to complete a deal

Getting a deal done takes time. Even with the most flawless execution, it is inevitable that there will be roadblocks and unexpected challenges in reaching the closing table. It is imperative that you and your advisors are on top of all key details and parties to the transaction so that when the inevitable issues arise, they can be handled quickly and the process can keep moving forward.

10. Unnecessary complexity – Not keeping it simple

Although exit planning is a challenging and multifaceted task, do not blow it out of proportion. If you believe that it is too complicated, you may not take that all important first step, and as a result, you may find yourself only beginning to think about your exit plan when you are forced to. There’s no need to let this happen.

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