I Am In This Business, But I Have To Get Out
Partial quote from Young Frankenstein by Mel Brooks
Dr. Frederick Frankenstein: . . . No matter what you hear in there. No matter how cruelly I beg you… Do not open this door or you will undo everything I have worked for.
Inga: Yes, Doctor
(He goes in and the monster awakens)
Dr. Frederick Frankenstein: Let me out. Let me out of here. Get me the *#*+ out of here. . . . Mommy!
For many owners who have been in business for some time, talking to them about an exit plan is often a non-starter. Most are comfortable with where they are, business is stable and life is good. So, why upset the applecart? But, some face the unplanned event or crisis or perhaps come to the realization that they have to get out and when I speak to them, it is like this scene from young Frankenstein. Panic sets in. But, there are alternatives available, each of which is a subject unto itself. For now, just to give you an overview, let’s do a quick tour of some:
Sell to outsiders – at this time, there is a record amount of cash (in the billions ) sitting with private equity sponsors and strategic buyers, so some would say this, combined with a decent market creates a unique opportunity to go to the outside for exit.
Sell to insiders / management – this is a common route for what are often referred to as lifestyle businesses. Franchisees, dealers and distributors with geographic markets and certain service businesses fall into this category. As an owner, you need to have some flexibility to make this work. You may not get a premium price and you may have to help finance it. You also need a good management team in place but it is an alternative.
Transfer to the family – similar to a sale to insiders, it is a way to get yourself out and to have your heirs enjoy the risks and rewards of being the boss. It is often gratifying to see your family carry on the tradition – even if they do not do it your way.
Do a partial transaction – you borrow money, use current funds or recruit an investor to finance your” taking some chips off the table.” This can become a more complex deal, but it can be an alternative for you. I will cover this alternative further in a future blog.
ESOP (Employee Stock Ownership Plans) – this has become a common technique in a number of more substantive transactions. It has some administrative costs and structure considerations, but real potential tax benefits and financing options so it should be considered in any deal involving insiders, management or family.
So, there you have it. Some ideas to consider when you feel the time has come to exit. If you decide to exit, just keep in mind there is a process which I have blogged about in the past and the more time you have, the better. Just keep one thing in mind – it is difficult to successfully manage a business when either circumstances or mindset tell you it is time to move on.