NFIB

Planning Your Exit Strategy
09/ 29/ 2003

by Shannon Scully

You work hard now so that one day you can be here, proud of your accomplishments but free from the everyday hassle. You dream about that day, but do you plan for it? Even if youÆre years away from moving on, think ahead. Because exit strategies arenÆt just for deciding how to get out, they also lay the groundwork for getting ahead.

Maybe youÆll travel more, quit setting your alarm, play golf every day, take your grandkids to Disney World. No matter what you do, the thought of that moment when you walk out the door for good keeps you going as you stomach the latest double-digit increase in your health insurance costs or wonder how youÆre going to meet payroll taxes. But handing over your lifeÆs work may be harder than you think, especially if you havenÆt prepped yourself and your business. Passing it on to your children, selling to strangers, merging with competitors -- theyÆre all options. To stroll the happiest of trails when you leave, start mapping the journey today.

Chapter 1: Check Out

Anna Belyaev hates messes. The 35-year-old CEO wants everything perfect at her aptly named e-learning company Type A. ThatÆs why she and her business partner, Arlo Leach, recently spent a day away from their Chicago office to plan what will happen when theyÆre ready to leave their 5-year-old company.

"A lot of business owners donÆt want to think about their exit strategies," says Belyaev. "But like it or not, somehow or other, youÆre going to exit at some point."

If you donÆt have children or other family interested in the business, youÆll likely end up selling to strangers, employees or partners. Regardless of the buyer, there are several things to do in the years leading up to the sale to ensure the highest price and the smoothest transition.

"We were committed to the fact we didnÆt want to leave a mess," says Belyaev, who learned firsthand about the need for planned exit strategies when her parents passed the family farm to their seven children.

Planning for the future ended up helping their business right away. Belyaev says their hiring and promotion strategies changed when they realized they needed to groom a successor. Looking at it as a work-in-progress rather than a document to collect dust revitalized their outlook on the business.

BelyaevÆs foresight proves exit strategies arenÆt only for those with graying hair.

"You should be thinking about your exit strategy the day you start your business," says attorney Garrett Sutton, author of How to Buy and Sell a Business (Warner Books, 2003), part of the Rich DadÆs Advisors series.

"By keeping the issue of exiting in mind as you build your business, you will hopefully have the flexibility to handle the exact strategy at the appropriate time."

Marc Moore and his partners planned for their exit before they even started his former business, Payroll Transfers Inc. "From the very beginning we ran it as if it were a public company because we wanted the option to sell privately or do an IPO," says Moore, who now owns DT Net Group, a conglomerate of companies in Tampa. The discipline of running a private company like a public one forced the partners to keep perfect books, a major plus when itÆs time to sell.

Good books are important regardless of the size of a business. Donna TouchetteÆs bookkeeping for her family-owned business, Dana Market, was so precise that bank officials complimented her the day she closed on the sale of her convenience store.

"The bank said the sale went smoothly because of our books," says Touchette, who sold the business in Kingman, Ariz., earlier this year. "When you own a business, itÆs easy to walk up to the register and take a draw, but then you canÆt prove your sales later."

Touchette thanks her father for lessons in precision. "If there was a quarter missing at the end of the month, he wanted to know where it was."

Those kinds of checks and balances in your accounting pay off when youÆre putting a price tag on your business. Organizing your books canÆt be done at the eleventh hour either, says Sutton.

"First impressions are lasting," he says. "And in the crush of commerce, you donÆt have time to make sure everything is up-to-date. Your books need to be in great shape upfront."

The hardest part of the sale to someone you donÆt know may come after itÆs over. Though youÆre looking forward to the day youÆre free from the stress, walking away from employees, clients and your whole identity as a small business owner may not be the ride into the sunset you envisioned.

"When I drop by the store to pick up my mail, itÆs hard not to want to say, æMop this floor!Æ " says Touchette. "ItÆs very hard to tell yourself you donÆt care. You canÆt not care."

Chapter 2: Keep It In the Family

Alma Alfonzo loves to see old photos hanging on the walls in small businesses. To her, it shows a strength and stability not always found in impersonal national chains. "ItÆs amazing to see where they came from and how they started," says Alfonzo, the owner of Lelolia Bakery in Cleveland, Ohio.

Though just over two years into her Hispanic bakery, Alfonzo is already thinking about the future of her famous flan. With skyrocketing sales and franchises planned for the not-so-distant future, having her two daughters take over the business one day would be icing on the cake.

"ItÆs always in the back of your mind when you start a business," says Alfonzo, who started out wholesaling single-serving size flans. "You dream of being able to look back and see the roots of your business. ItÆs like a drawing. You want to see the finished product."

Sadly though, 70 percent of family-owned businesses donÆt survive to the second generation, according to the Small Business Administration. And the issue will only become more relevant. As post-World War II entrepreneurs near retirement, many will have to make succession plans, according to the Family Firm Institute.

When you sell your family business to the children, you may feel like youÆve never really left. YouÆre on-call 24/7 for questions about how things work.

Larry Karel wouldnÆt mind a bit if his daughter, Jill, asked for his advice about their family-owned business after he turns it over to her. His perfect scenario?

"What I would love to do is to let Jill run the business, and I would be in the background to answer questions, but not even come into the office," says Karel, the second-generation owner of Aventura, Fla.-based Karel Exposition Management, which organizes regional furniture and accessory trade shows.

Since he has already lived through one succession of the business, Karel understands the stress that kids feel when their parents unload the responsiblity.

In the KarelsÆ business, relationships are everything. Some retailers have been buying furniture at Karel Expo shows for years. They associate the silver-haired man and his big grin with the success of the company. Now that he is closer to bowing out, he understands what his daughter, Jill, might be feeling.

So for the past 16 years, Karel has been training Jill to be the boss. SheÆs almost ready to take the reins. But luckily for her, sheÆll always have an expert to call, even if he is on the golf course.

Chapter 3: Roll Up

When Ed Avis bought a trade magazine, Modern Reprographics, at the age of 29, he knew he wouldnÆt want to publish a magazine on blueprints for the rest of his life. So in 1998, five years after he bought the title, he turned around and sold it to competitors for a substantial profit.

Though it might sound like the perfect plan, Avis learned plenty of lessons during his first exit that heÆll remember when heÆs ready to leave his current book publishing company, Oak Park, Ill.-based Marion Street Press.

"I learned that money is not what makes a good life," says Avis, who plans to stay at his current company until he retires. "When IÆm 65 and I sell this company, IÆm not just going to go with the highest bidder."

Selling to a rival might sound painful now. But when youÆre ready to put your business on the market, others in your industry are the best buyer prospects. Avis used a business broker, a move he regarded as valuable.

"A broker is worth his weight in gold," says Avis. "What did I know about selling a business? The broker knew the market, knew how to put together an impressive proposal and knew all the important legal stuff."

In cases where competitors are sniffing around your business, a broker can filter real buyers from those just looking for trade secrets. Brokers also provide an outside perspective.

"One of the most common mistakes in a small business sale is emotion," says attorney Garrett Sutton. "ItÆs like asking parents to sell off a child theyÆve raised."

Avis was surprised at his emotions after the sale. In his mind, selling the magazine killed the spirit of the company he created. "Having my company go from a fun place to work to a ghost town was stressful," he says.

Looking back, he recommends finding a buyer with a passion for the company.

"At first, everyoneÆs end result is to sell their business and make a lot of money," he says. "But having a company you can look back on and be proud of is worth more than a pot of gold."

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This article originally appeared in the October/November 2003 issue of MyBusiness magazine.

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