Ways to Exit Your Company CHOOSE THE PATH THAT WORKS FOR YOU By Stephen Klein, CPA 8 According to Paul Simon, there are 50 ways to leave your lover. Not being as creative as Mr. Simon, we have only come up with eight ways for owners to leave their companies: • transfer the company to a family member; • sell the business to one or more key employees; • sell to key employees using an employee stock ownership plan (esoP); • sell the business to one or more co-owners; • sell to an outside third party; • engage in an initial public offering (iPo); • retain ownership while becoming a passive owner; or • liquidate. given the right circumstances, one of these paths may be appropriate for you. the process of determining exactly which avenue is best presents an obstacle to many owners. if, however, you wish to “leave your business in style,” we suggest that you work through this three-step path selection process. establishing thoughtful objectives lays the foundation for an exit plan. doing this well in advance of your departure gives you and your advisors the time necessary to make your goals a reality. as you work through this path selection process, you will synthesize or harmonize your exit objectives with the characteristics and capabilities of your company as well as with the external realities of the marketplace. Choosing a Path STEP ONE first, as an owner and with the help of your advisors, you must identify your most important objectives. these objectives are both financial (“how much money will i need from the transfer of the business to ensure my and my family’s financial security?”) and non-financial (“i want the company to stay in the family,” or “i want to remain involved.”). internal and external considerations also impact an owner’s choice of exit strategy. for example, the owner who wishes to transfer the business for cash, but is unwilling to trust his company’s and his employees’ fate to an unknown third party, may decide that an esoP or carefully-designed sale to a key employee group is the best exit route. exterior considerations that may impact the choice of exit path include business, market, or financial conditions. for example, the option of selling your business for cash to an outside buyer may be eliminated because of the anemic state of the mergers and acquisitions (m&a) market. STEP TWO as you develop consistent objectives and motives, you then must value your company and determine its marketability. this analysis usually provides direction and can eliminate potential exit paths. for example, if the value of a company is high and its marketability is low (perhaps because of the depressed state of the m&a market), an owner may decide that a sale of the business to an outside party is impractical. instead, selling to an “insider” (co-owner, family member, or employee) may be a better option. STEP THREE the final determining step is to evaluate the tax consequences and strategies of various exit paths. many tax-minimizing techniques require years to fully implement and are often linked to the person or entity to whom you wish to transfer the business. by using these three criteria (objectives, value, and tax consequences), owners can begin to narrow the list of exit routes. it is far better for you to choose the appropriate exit strategy than to delay and allow circumstances to force you onto a particular path. if you have already decided on a path – perhaps to transfer your company to your children – but have failed to implement the appropriate transfer and tax decisions, then you have delayed your departure. likewise, if you have decided to sell to a third party, but have not prepared your company to go to 32 hbma billing • november.december.2013
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