Planning Your Financial Exit

As soon as you establish real market traction; by which I mean a stream of revenue based on marketing and sales activities that can be repeated and grown at a rate that meets your objectives; you should start planning your financial exit.  You can do this yourself; or we can help you.  The objective is to maximize the enterprise value.  That in turn should maximize your personal exit amount.  But check your contract so you understand in detail all of the “moving parts.”  While it is somewhat different in a growth unit of an established company versus a startup; the core principles are the same.

Planning an Acquisition Exit

Most of this discussion will focus on planning an acquisition exit.  That planning process includes

Developing a Financial Exit Strategy

  • What is your status?
  • How many years before your likely exit?
  • What types of companies will then be interested in acquiring you?
  • What is your Financial Exit Strategy?  How will you maximize the enterprise value?  Who needs to “Buy In” and/or approve the strategy?  What Succession planning is required; who will replace the CEO and other key executives and how will that be managed?
  • What does your first presentation package look like?

Implementation of the Exit Strategy

  • Preparation of the first presentation package
  • Identification of Players
  • First contact with potential acquirers

Execution of the Exit

  • Ratcheting up your activity levels and acquirer interest levels
  • Moving toward a Feeding Frenzy of active buyers/acquirers
  • The Feeding Frenzy
  • Due Diligence
  • Negotiations
  • The Deal
  • Multi-Stage Payments

 

Basis of Enterprise Value

Enterprise value is made up of the following components:

  • Value of tangible assets
  • Value of intellectual capital (intangible assets)
    This includes:

    • Human capital
    • Relational capital (customer relationships are key) (key for startups and SMEs)
    • Structural capital
      This includes:
    • Organizational capital
    • Innovation capital (key for startups and SMEs)
    • Process capital

This has been taken in part from the Exit Planning article of Wikipedia at http://en.wikipedia.org/wiki/Exit_planning on December 11, 2014.

 

Desired Financial Exits

For a Startup or SME/SMB

The most likely desired exit is:

  • Acquisition by a larger company

Other possible Financial Exits include:

  • IPO
  • Dividend stream
  • A slower than desired revenue growth during which many of the best executives leave
  • Going out of business; either quickly or slowly

For a Division of a Company

  • Payment based on performance of virtual stock or shadow stock is highly desirable
  • Payment based on objectives or on a dividend stream is unfortunately a more likely exit for the CEO.  But all of the above possible exits exist plus the following:
    • LBO by employees
    • Spinoff

 

 

 

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