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No matter how successful your business may be, you always need to keep in mind what will happen if you need or want to sell your business. Having an exit strategy is crucial, because circumstances can always change. You want to be prepared in case something happens that can cause you to consider transferring your business. It is important to choose the right exit strategy that will meet your goals. An experienced business attorney here in Texas can help you prepare an exit strategy that will work best for your business.
What Are the Different Types of Exit Strategies?
There are different exit strategies that are available to Austin business owners. One is to simply sell your business to another individual or company. For example, you could sell to a competitor, or find a vendor or supplier who is looking to grow by vertical integration. This will likely require you to sell out completely (and may even lead to your retirement!). How you structure it will depend on whether the parties prefer an equity purchase or an asset purchase.
You might also consider merging into another company. In this situation, the buyer might want you to stay on for a year or two to help integrate your business operations into that of the parent company. This might not make sense if you are looking to retire quickly.
Another option is to have a close relative or key management person take over, buying out the business from you. One possible issue here is that setting up a succession plan could lead to some hurt feelings among your employees and close family members. If you end up passing over someone, you might see this person leave the business, or there could be relational repercussions.
A final option is to liquidate the business. This would involve setting a date to close the business and selling off the assets to third parties. You will also have to consider paying off any creditors before you can receive the net proceeds of the sale.
What Are Some Key Things to Consider?
No matter which strategy you choose, you will likely need to pay attention to the details. You may also have to ensure that you put things in place to put your exit strategy into effect upon a triggering event. This includes choosing an exit strategy that fits your business type. A sole proprietorship will likely be handled differently from a corporation or limited liability company (LLC) that may have outside investors.
You may also need to address the valuation of your business. This may entail figuring out how each asset is valued, how you treat intangible assets, and the justification for your numbers. If you are selling the business to a third party or merging into an existing company, you may have to negotiate the purchase price. Having a valuation prepared by a trusted accountant or appraiser will likely go a long way to getting the price you want for your business.
It is important to ensure that your exit strategy avoids any legal problems. If you have a great deal of intellectual property, or have many contracts, it is important that any transfer is handled correctly, including getting all of the necessary consents from third parties. The last thing a business owner wants is for their exit strategy to trigger a series of costly lawsuits.
As with most things in life, your choice of exit strategy could have tax implications. Depending on how the assets are sold or transferred, and whether there is any gain on historic cost, you could end up with things like a capital gains tax. It is often recommended to have an experienced accountant review your exit strategy and work with you during any transfer to make sure that all taxation issues are properly addressed.
Finally, you may have to ensure any creditors of your business are satisfied by the exit strategy you choose. In many transfers to third parties, such as mergers and acquisitions, creditors are commonly paid off through the sale proceeds. However, a family or management succession may not pay off the existing business debt, and creditors may get irate if they are not happy with the new management of the business. Similarly, a liquidation may not lead to the creditors getting paid off in full, depending on the terms of the liquidation. This may create more problems for you after retiring from your business.
If You Are Considering an Exit Strategy for Your Business, We Can Help You Tailor One That Will Address Your Goals.
Exit planning is key for any business here in Texas. The experienced business attorneys at The Kumar Law Firm can help you craft an exit strategy that will address the goals and needs of your business. Get started by contacting us today.