One of the last things on your mind when starting a business is preparing for its sale, yet some of the most common business documents we’re asked to prepare is for the sale of a business in whole or in part (asset purchase, stock purchase, etc.). Business buyers seek opportunities in all sectors and niches; it doesn’t matter whether it’s a local dog grooming business or a multi-city federal contracting firm.
But receiving good offers goes beyond simply having a business that someone else might want.
Second, it’s crucial in the start-up stage you use some type of accounting software or system that you regularly update and which you can use to produce quarterly and yearly financial reports.
While our website contains general information for your review, it is not legal advice or tax advice. In the second year of the Civil War, Union troops were destined to learn a tragic and valuable lesson about the lack of a well thought out exit strategy from battle. In preparing for the Battle of Fredericksburg, they badly underestimated just how dug in and fortified the Confederate positions were. Then, a lowly Private in one of the boats made an educated guess, which foretold of the impending disaster by stating, “They want to get us in good and close. Over the next two days, Federal troops were soundly defeated, with over 17,000 killed, wounded or missing. What you need to know is that having a well-thought out exit plan is going to shape how you will both build up and run your business. This is a very attractive option because it raises the specter of “cashing out” once the business has built up valuable equity of its own.
The United States has an official retirement age, but these days it is becoming an oft-ignored date.
Another popular exit strategy—especially in the franchise world—is having the ability to step back and allow another individual to lead your business efforts. Hopefully you now have a clearer understanding of just how important an exit strategy can be in relation to your overall business plan. Throughout the lifecycle of a business, it is important for a business owner to remain focused on increasing the profitability, competitive advantage and market reach of the business. This article focuses on the critical nature of the due diligence process in connection with a business acquisition. A thorough due diligence review of the business being acquired (commonly known as the “target company”)is critical to identifying the risks, fixed and contingent liabilities, and problems (which are not otherwise disclosed by the seller in the acquisition agreement) that need to be evaluated carefully by the buyer, in addition to the value, efficiencies and synergies that the buyer can realize from an acquisition. When acquiring a business, will the buyer be able to realize unique competitive advantages from the acquisition? Are the employees of the target company subject to noncompetition, nonsolicitation and confidentiality obligations that protect the target company’s goodwill, customer list, and other important proprietary or confidential information? What third-party consents will need to be obtained in connection with a sale of the business?
The scope of a due diligence review should be thorough but appropriate for the transaction. In conducting the due diligence review, the buyer’s legal team will obtain important information about the target company from both primary and secondary sources.
Financial Statements and Tax Returns and Reports. A review of the target company’s year-end financial statements and tax returns and will enable the buyer’s legal advisors to identify the existence of any material issues related to the target company’s financial operations or tax compliance measures. Litigation Documents. If the target company is frequently involved in similar types of litigation, there may be an underlying problem in the operation of the company.
Regulatory Compliance. The operation of the target company’s business may be one in which the company is required to secure and maintain governmental authorizations, permits, licenses and certificates.
Environmental Compliance. If the buyer is acquiring any real property in the transaction, then the buyer should engage an environmental consultant to conduct Phase I and Phase II environmental assessments of the property.
Employment and Employee Benefits Documents. An attorney who specializes in employee benefit matters will need to review any employee welfare and pension benefit plans of the target company to determine whether the plans have been properly operated and adequately funded. Warranty and Product Liability. If the target company manufactures a product or provides a service, the buyer’s legal counsel will review any scope of the product warranties provided by the company and determine the existence of any actual or potential product liability claims against the target company. Other Material Agreements. While this category may seem like a “catch all,” it includes some of the target company’s most important agreements, including vendor and supply agreements, licensing and advertising agreements, agreements related to previous acquisitions and dispositions by the target company, non-competition agreements, employment agreements, and joint venture or partnership agreements. As the due diligence process can be lengthy, the buyer’s legal counsel should provide the target company a comprehensive list of documents and issues the buyer needs to review and discuss with the target company at an early stage in the process. A comprehensive due diligence review is a critical step in protecting and assisting a buyer in connection with the potential acquisition of a business.
Several select members of your Exit Promise Community contribute their thoughts about how to grow and sell a valuable business by writing posts and in-depth articles. Holly Magister is the founder of ExitPromise where she helps entrepreneurs start, grow, and in some cases sell or transfer their businesses to new owners.
One day, you are going to decide enough is enough and either sell your business, or hand over the reins to someone else, such as a business partner, or family member.
The sixty million dollar question is, do you have any idea what that transition might look like? Would you like a family member to eventually take over the business, or do you think you’d more likely sell it to a third-party?
Would you consider bringing onboard a general manager for a time until you decide the best course of action?
Would you stay on for awhile to train, coach, or otherwise support the new owners or managers? Do you see yourself as still owning shares in the company, or partaking in any ongoing profit-sharing?Whatever your situation there are dozens of issues to be considered and decisions to be made when planning your exit strategy. Think about what your long and short-term goals and objectives are, both in business and in your personal life. All of this will be a whole lot easier when you have given yourself the opportunity to think through, and plan, every step of the process. View succession planning as another exciting and rewarding business challenge and remember it is not something achieved overnight, it’s a long-term dynamic process. You should really know your intention on why you are trying to succeed in your home based business. You should believe that the business that you have is the most powerful thing on the internet. You can have everything in life that you want if you just give enough other people what they want.
When employees leave an organization, there are things that need to be wrapped up, materials collected, forms signed and internet access disconnected on the terminating employee. An effective way for a Human Resources management system to ensure all termination issues are addressed and followed-up on is to create a termination checklist. A checklist serves as a reminder to follow-up on all termination issues and can be referred to when conducting an exit interview to ensure that all topics are covered and all possessions of the business are collected before the employee walks out the door.
When employees leave employment it is important to conduct an exit interview so you can gain helpful information from the employee who is leaving. You want to learn about their experience as an employee but more importantly you want to find new ways to improve employee retention and to create a healthy workplace where employees are engaged and personally fulfilled. One of the first things you should be doing is cancelling any access the employee might have to computer files and buildings.
Make sure your IT person cancels passwords to any company digital files so you can secure your company’s electronic data.
Make sure your payroll department calculates final hours worked as well as any unpaid vacation or PTO hours. It is important to show your appreciation for the departing employee by hosting a farewell party.

Every organization does things differently but these are a few sample items that could be put on an employee termination checklist. Lastly, conducting an exit interview can provide valuable feedback for an employer and using a termination checklist can ensure all termination issues are taken care of in a timely manner. Enter your email below to receive FREE articles to help you manage your organization better!
Critical to my plans was the issue of who would be managing my client’s financial affairs and investments upon my eventual retirement.
I can now move onto the next phase of my life, with the knowledge that I have implemented my succession plan that addresses all aspects of my business in a very equitable and satisfactory manner for all parties. It is easier to invest in private companies than it is to unlock value from these investments. What many investors and entrepreneurs don’t realise is that positioning a business for a successful exit already starts in the due diligence process — even before investment. Entrepreneurs could build businesses with the goal of creating future dividend streams or to leave a lasting legacy in a family business, but in many cases growth is enabled by M&A activity and wealth is unlocked through a so-called liquidity event.
Exit-centric business building ensures that growth is engineered so that companies become enticing prospects for stakeholders to do business with – and possibly acquire. The investment approach is based on an understanding of the growth gaps in executing an ambitious strategy and overcoming the challenges faced at each stage of the business building cycle from startup to sale. Building a business with exit in mind is not the same thing as backing a flippable business idea where it’s about getting in, getting out, and moving on to the next idea before the bubble bursts.
Creating a valuable company includes having a solid business model with recurring increasing revenue streams, a manageable cost base and a strong balance sheet. Focusing on the different ‘traction verticals’ in your business can advance these inflection points. In order to survive due diligence and receive premium valuations, companies must be able to clearly articulate their value proposition, business model, financial profile, total? addressable market and its positioning within this. In order to kick-start more early-stage M&A activity in Africa and attract investors to this space, a deeper understanding is required of the virtuous cycle of starting up and exiting.
As long as a business has some visibility and an existing revenue stream or profit potential, it is likely to attract interest. If you have ever watched the show “Shark Tank,” it’s typically those entrepreneurs who can promptly spout out financials and sales data – along with having a good idea – that get offers from the featured celebrity investors. While any budget is a good start, bear in mind that many business budgeting templates on the net are outdated or unrealistic when it comes to estimating fees for accountants and attorneys (you might not budget properly for attorney or accounting fees in the beginning, but a business will get to the point where these services are absolutely necessary and you need to plan for that). This will be one of the first things a potential buyer will want to analyze (in addition to tax returns). If you have a legal question, we can only provide legal advice after analyzing the specific facts of your case and entering into a representation agreement. It was December of 1862 and Federal troops had taken up positions in the town of Fredericksburg, Virginia—determined to cross the Rappahannock River and attack Confederate troops on their way to the Rebel capital of Richmond. As company after company crossed the river in boats in preparation for the upcoming fight, many of the officers and men in the Federal camp were amazed that there seemed to be little or no resistance to their initial advance. While it has been stated previously in this blog series many times before, the single-most important consideration is choosing the right type of business.
Keep in mind that when you begin the effort to author your all too important business plan, an exit strategy should receive a Roman Numeral of its own. If you begin a business with the outlook of one day selling it for a profit, deciding and knowing when to pull the trigger will be a concern. As previously stated, people are living longer and healthier lives and often times obtain much enjoyment from running a successful business into their golden years.
Ownership is retained and, in effect, you have the option to bring in a qualified candidate in order to “Manage the Manager.” If the right match can be found, whom you will entrust to run the day-to-day dealings of your business, you will have increased leisure time while your equity continues to grow at the pace you are directing. Make it a vital part of your strategy from the outset and you’ll be in position to benefit from the equity you will have built up over the life cycle of your business or franchise. If this article has inspired you to craft an initial business plan with a well-thought out exit strategy, perhaps it’s time to talk with a qualified and experienced franchise consultant.
An entrepreneur typically accomplishes these objectives by (i) reinvesting the profits of the business to increase its workforce, customer base and cash flow and (ii) using business profits (along with other financing) to acquire competing businesses. The term “due diligence” broadly describes a detailed assessment of the many different functions, tangible and intangible assets, and liabilities of a business.
Is the target company a party to material contracts (including supply, employment, license and distribution agreements) that may not be assignable in connection with the transaction? This requires the buyer to consider how much time it has to conduct the due diligence review, how much it wants to spend on the review and the resources of the target company.
Primary sources, which include the target company’s responses to written due diligence requests, management presentations, documentation set forth in a data room, and the target company’s disclosure schedules, may not be accessible until a later stage in the due diligence process. As such, the buyer’s legal counsel will carefully review all documentation relating to all actual or threatened litigation in which the target company has been involved within the previous three to five years to determine the extent of the target company’s liability. Additionally, the buyer’s legal counsel will want to review any environmental permits and studies that have been issued to the target company. Additionally, the buyer’s legal counsel will review the target company’s employment agreements and collective bargaining agreements to assess the protection they provide and determine whether they can be assigned to the buyer. By reviewing the types and number of claims the target company has made under its insurance policies, the legal team will be able to determine whether similarities exist among the claims and whether the insurer is likely to deny coverage for future claims. The buyer’s legal counsel will review these agreements to determine whether they are assignable by the buyer at the closing of the transaction, how and when they may be terminated by the parties to the agreement and whether the contemplated transaction would result in an event of default under the agreement. Once the buyer’s legal counsel has reviewed the initial documentation provided by the target company, it will likely submit to the target company follow-up document requests and questions. The results of this review will make clear whether the buyer should proceed with the transaction and the important issues and terms that need to be negotiated in consummating the transaction.
Thinking about your business exit strategy might be inspired by the fact that you finally want to retire, or that you’re simply bored with your business and want to try something else. Many entrepreneurs never think about the succession of their business because it always appear so far away. This could be a form of semiretirement for you and give you a way to ease yourself out of the business. Even if you don’t plan to leave the business for twenty years, you can still begin putting systems in place that will make it easier when the time comes.
This can include tax advisors, lawyers, accountants, bank managers, financial planners, business valuators and brokers, senior managers in your firm, family members, and anyone else whose opinion you value. Ideally you will want the succession to take place smoothly, maximizing both the profit you can take from the business and its ongoing revenues. In order to post comments, please make sure JavaScript and Cookies are enabled, and reload the page.
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Thankfully I sought guidance from Financial Planning & Succession Pty Ltd, and its Principal, Peter Fysh. While the venture capital (VC) and private equity (PE) investment space is gaining more and more momentum in Africa, the process of exiting these investments remains a challenge.
Exit strategies will most likely influence the investment term sheet and govern the relationship between the entrepreneur and investor.
The most common methods include trade sales (direct acquisitions by other companies), secondary buyouts (PE-to-PE sales), and IPOs (becoming publicly owned and traded on the stock market).

Trade sales to strategic buyers have been the most significant exit route in Africa, accounting for over half of all exits, followed by secondary buy-outs. It involves generating meaningful traction off a solid foundation of corporate governance and focusing on achieving set milestones.
The business should be packaged and enabled to rapidly react to any window of opportunity for corporate activity.
It is more about developing a business model on the idea of creating an enduring, great company – but with a deeper understanding of the end goal. But in a high-growth venture there are other considerations at play, as value is not created linearly. If you overlay industry lifecycles that fuel M&A activity, the timing of any exit or liquidity event becomes an important value driver. Investors and entrepreneurs who jointly craft their liquidity events will pursue a shared goal. If you build a sustainable well-managed company by pursuing a scalable business model, interesting opportunities will present themselves every now and then.
He structured various private equity funds in Southern Africa for a US fund-of-funds investor and worked at industry-leading companies such as Procter & Gamble, Investec Bank and Mark Shuttleworth’s ‘Here Be Dragons’ (HBD) Venture Capital. If you lack pieces of critical information, a potential buyer – like the Shark Tank investors – will be unlikely to invest. In these situations, we may suggest that you consult with another practitioner, but you are required to perform your own due diligence on any practitioners that we suggest. Covey, author of the immensely popular best-seller, “The Seven Habits of Highly Effective People” echoes the value of exit strategies by outlining his views in Habit No. Perhaps then, you intend to stay on and direct efforts while considering family members as natural successors. This tactical method is also referred to as the “Semi-Absentee Model” in the franchise world. Such business acquisitions typically serve two purposes by eliminating competitors and increasing the growth rate, product and service offerings, and market share of a business. A common misconception is that acquiring a smaller company is relatively easy; however, an acquisition of a smaller business may require additional legal due diligence due to the target company’s inadequate record keeping and limited resources to assist the buyer’s professional advisors with the due diligence process. Consequently, it is important for the buyer’s legal counsel initially to obtain background information about the target company by reviewing secondary sources of information such as media articles, the target company’s website and judgment and lien searches covering the target company. If the target company is not qualified as a foreign corporation in certain jurisdictions in which it does business, then the target company’s ability to sue and enforce agreements in that state may be impaired and the target company may be subject to certain compliance penalties. The buyer’s legal counsel will ultimately prepare a summary of its due diligence review, often in the form of a memorandum or a due diligence checklist, for the buyer to consider in evaluating the acquisition and negotiating the terms of the acquisition. To avoid buyer’s remorse, it is important for a buyer to carefully assess the information that is derived from this review. Maybe the business is doing well and it seems like a good time to cash in, take the profit and start something new.
But a succession plan is something that should be considered as early as possible, not something that crops up six months before the owner decides now’s the time. Another thing to consider is that you never know when a major illness might befall you, forcing your business into a succession situation at short notice.
Meet several times a year to discuss the future of your business and include succession planning in that conversation.
This effort is also important for those remaining employees because they need to see the organization recognize employees for their contributions. It was comforting to know that Peter has a good understanding of the issues that I was facing, given his extensive knowledge of the Financial Planning industry, gained over many years working in the industry. There was also the issue of my staff, and how they too could be looked after within my succession plans. If you do not end up exiting the business, it does not signal disaster since you’ve built a sustainable business for the long run. Significant valuation increases usually occur in discrete steps rather than through smooth linear growth. During a consolidation wave, an industry leader built on business fundamentals becomes a hard prospect to ignore for a strategic buyer – especially if no other sources of funding are needed besides self-sustaining growth. You need to generate inbound interest from the right potential partners by creating an enduring, great company that pulls people toward its products and activities, where they intuitively want to be.
This may sound like basic advice, but a large number of business owners procrastinate on recordkeeping or proper financials or worse, don’t bother. For instance, you may only want to be involved in the business for 10 years when your partner may be thinking fewer than 10 years. Information on laws and taxes were current at the time of publishing but are subject to change. However, equally important should be your long-term plan for strategizing an exit or transition once the business objectives have been fulfilled to your own personal satisfaction.
Inheritance in this case can mean a well-developed business in addition to other financial holdings.
As a franchise consultant company with a great track record of assisting individuals on their path to business ownership, make arrangements to speak with one of our representatives today. Based on the information obtained from the target company in the initial stages of the review process, the scope of due diligence may become more or less comprehensive. Some have said that you need to have an exit strategy just in case your venture doesn’t work out.
These stepped increases in value occur when individual strategies – such as establishing strategic partnerships, expanding to new territories and introducing new products or services – are successfully implemented. The partnership opportunities one can then pursue are endless, including joint ventures, M&A activities, follow-on investment and partial- or full exit. The speaker profile include M&A experts with experience in exiting local private companies as well as dynamic entrepreneurs who have built and sold their high-growth ventures. An experienced business attorney can help get you on the road to thinking long term from the beginning.
Then, when a potential offer comes in, they lack comprehensive data for the buyer to review. What if an offer comes in and the majority of partners think it’s a good idea, but other partners refuse to sell (or vice versa)?
This important concept holds that you, as the prospective business owner, must be able to envision the proposed destination of your plan, start to finish—and remain proactive enough to see it through to the finish line. And there’s nothing wrong with keeping things in the family, provided that the initial business plan and direction are continually in line with the original details. Of course, keeping proper financials has some other benefits if the IRS were to challenge a business tax return. If everyone is not on the same page, legal conflicts are likely, and remember that minority partners can have what are known as ‘dissenting rights’ to challenge a sale that is proposed or that wasn’t accepted by the majority.
Covey clearly states that the easiest way to accomplish this method of thinking is to write out your Personal Mission Statement. As always, having the proper documents in place in addition to financials and accountability measures ensures that your business is well positioned to take advantage of a potential offer. And that includes covering all of your bases from the inception of your plan all the way through to a carefully crafted exit strategy.

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