BUSINESS Exit Strategy Basics in acquiring a business without the assis- tance of a professional team. In short, my contribution was suc- cessful, the lawyers draſted the agree- ment and the deal was done. The buy- er was very familiar with the acquired company but nonetheless engaged in some appropriate due diligence prior to the sale. Some of this relied heavily on a few individuals employed by the acquired company who were going to become members of the new owner’s management team. However, after the sale, the buyer learned that virtually all of the materi- als used in his manufacturing process were on the company’s books at seriously understated costs. Apparently, the com- pany’s accounting standard cost infor- mation had not been updated, and gross margins were seriously inflated. Conclusion As you think about an exit strategy, here are some considerations: It’s never too soon to begin identify- ing your options and engaging in exit planning. Even if your plan is sound, you may not be in complete control of your destiny. Contemplate buying insurance as a method of protecting those who de- pend on you. If the business includes a building, evaluate buying it personally and leas- ing it back to the business. Identify ways to reduce your business tax liability while funding your retire- ment plan. Decide how much your retirement should depend on the successful and timely sale of your business. Inject yourself with frequent doses of reality truth serum when it comes to estimating the probable real-world val- ue of your business. 22 KEYNOTES NOVEMBER 2020 “Although there’s no such thing as a free lunch, when you’re sufficiently profitable, you can reduce your tax liability and protect your business and loved ones at the same time.” Don’t be a neophyte when it comes to buying and selling a business. Educate yourself and ideally get some experi- ence before you try to sell your business No, I was not kidding when I said that the Easter Bunny is not real! As you consider each of the items in this list, ask yourself what the common thread is that runs through all of them. Certainly, one obvious and inescapable observation is that under virtually any scenario, a truly successful business pro- vides more viable options for your even- tual exit. Moreover, a well-run company (one with a solid infrastructure that’s not overly dependent on you) will enhance the appeal and perceived value of your business to just about any potential buyer. If you prefer to be less dependent on sell- ing your business as your main exit strat- egy, you may be more comfortable paying yourself a higher level of compensation and using that to fund your personal re- tirement plan savings. This would help build a more protective barrier between your business and personal retirement savings while deferring taxes until later on — when you will likely be subject to lower income tax rates. Keep in mind that you don’t have to fully embrace either end of the spectrum for your exit strategy. You may prefer to hedge your reliance on the successful sale of your business by building a personal retirement investment account such as a 401(k) or IRA. These approaches are not mutually exclusive. Hopefully, at least some of the informa- tion in this article has been informative and useful. Think about what’s important to you and how that might change as you get older and approach retirement. Don’t get hung up on doomsday scenarios, but consider that you may not always be able to call the shots in your business or per- sonal life. Good health must not be taken for granted. Leave room for a safety net to help protect those who depend on you and erect a firewall between your business and retirement savings account. The next topic in this series is “Man- aging Your Sales Force,” where we will discuss how to build, organize and direct your sales team. Incidentally, members requested this topic in a recent survey. Noel Flynn is a degreed business management consultant with global senior leadership experi- ence, including more than 20 years in manufactur- ing, wholesale distribution and consulting sectors of the security industry. Noel has been a senior executive, officer, board di- rector and adviser to not-for-profit and for- profit companies in numerous industries worldwide. This includes being an ALOA SPAI board member since 2011, and he is also an ACE instructor, developing and teaching business management. Contact him at [email protected]. WWW.ALOA.ORG
