Exit strategies are not just reserved for business owners who are looking to leave the company. They’re also not exclusively for businesses that are going under or liquid. In fact, if you’re looking to open a business, that is the time that you should start developing an exit strategy. That’s right, you should have a plan on how exactly you would go about selling or handing off the business before your doors aren’t even open. But why?
An exit strategy is a critical element of business planning that can play a key role in bringing an Investor’s, co-founders, or even developing trust among the high-level management team. The idea is that these strategies will plan out different situations that may arise. Most businesses don’t last for more than three years, and most partnerships deteriorate in 5 years, so having an exit strategy planned when times are good can help ease painful moments in the future.
Exit Strategy – Usually an Unfavorable Plan to Get Out
The US legal dictionary acknowledges that an exit strategy is an escape from a current situation, and it’s usually in an unfavorable situation. When it comes to business, an exit strategy specifically refers to how one would transition ownership and ideally pull out the maximum value from the company.
However, if you talk to entrepreneurs and experienced business owners, they have a different take on an exit strategy. Ideally entrepreneurs and investors will plan their exit strategies to not only get back to the capital but to allow the company to cultivate a legacy. In past decades, exit strategies were used primarily for liquidation purposes. However, as many people are hitting retirement age, they’re handing off well-established and successful companies without liquidation or selling for unfavorable means. It’s simply moving into retirement rather than trying to escape an unsavory situation.
Should You Discuss Your Exit Plan with a Professional?
You should absolutely discuss an exit plan with a Connecticut business lawyer, and preferably a professional who has the experience and I either exit planning, business law, or mergers and acquisitions. Typically business owners will create an exit plan as part of the original business plan when they’re sticking out investors or bank loans. That Exit Plan needs occasional updating and revisiting over the course of the business is life.
If the business owner is conducting estate planning or re-evaluating their financial position they should certainly revisit their exit plan. an investor will look carefully at the financial and non-financial elements of the business. It is possible that through financial statements the business would produce one valuation, but when evaluating proprietary or intellectual property the value could change drastically. When conducting an Exit Plan it’s best to have a complete or professional business valuation so that the exit plan can properly reflect the value of the company.
Legal Elements of an Exit Strategy
When establishing your company there is some concern for the business is legal and internal organization structure. When it comes to leaving a company, that same legal structure can present different tax issues and distribution of assets concerns.
As part of an exit strategy, you’ll need to address how the entity structure of your business will impact the changing of hands. It’s possible that individual owners may need to pay taxes on appropriate shares or that they can simplify tax issues. Ownership structure, and even internal structure deserve attention when crafting an exit strategy.
Contacting Aeton Partners Business Attorneys
Working with a business attorney can help to develop an exit strategy that addresses legal elements associated with departing a company. For example, managing tax elements, arranging estate planning, handling liability issues, and even addressing legal elements such as partnership deterioration and division of the business.
An exit plan should aim to limit loss in regard to the worst-case scenario. However, an in-depth Exit Plan will also address other reasons for leaving the company or for passing it on to new hands. Retirement does not call for liquidation of the business and even deterioration of a partnership can result in the company continuing on a successful path while the initial owners or Founders step away. However, you must ensure that when you’re leaving a business, so you do it legally. Elements Insurance, certification, tax status, and more all play a role in an Exit Plan.
For support and understanding more about how business law impacts how a person should leave a company, contact Aeton Partners. At Aeton Partners, our business attorneys we help professionals understand legal nuances of a multitude of different situations.