Take It... Or Leave It, Alice Held -IRED.com

Alice Held, CRS, GRI
Alice is a Buyer's Agent located in Scottsdale, Arizona, USA. A Certified Relocation Specialist with an innovative relocation program Visit her WEB site at http://www.come2az.com/

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The Distinctive Business of the Real Estate Agent

Take It... Or Leave It

By: Alice Held, CRS, GRI

Reasons for Preparing an Exit Strategy

Surprises happen. Many of us have a story of an associate who had to sell their business unexpectedly. The reason could be an accident or a serious health finding. Or, it could be the buy-out offer of a lifetime from your manager, a colleague, or enterprising entrepreneur. Having an exit strategy in place enables you to perform when the unexpected happens.

The phrase "exit strategy" sounds final - as though you have decided to sell your business tomorrow. But, for most of us, this strategy is not only about where we want to be in 5 years, or 20 years. It's really about planning for success when we are ready to sell. Plans to sell your company should be made at the time you start to build it. If you have a target in mind, you'll be focused on maximizing profits and building a future.

Dreaming of being financially secure or preparing for being financially secure - it's the same concept, but one works and the other doesn't.

Success or Surprise?

Once prepared, when an unanticipated opportunity presents itself, you can give it careful consideration. You will realize fair market value because you will have done all the good steps I'm going to outline in this presentation.

When is an Exit Strategy a Strategy for Success?

The right strategy is about maximizing the value of your business, step by step, now and for when you want to leave. Most agents want to minimize their tax consequences, for instance, but this tactic reduces the maximization of value. This is one of the steps that may need attention.

You probably already know the basics you need to create an exit strategy. You know how much money you want to have by a certain age and how much risk you are willing to take. Know why you are in the business and what is most important to you. You are unique and the interests and background you have means you will have special plans for the future. They are the first steps on your journey to an exit.

Do you want to retire to some island paradise, or do you plan to stick around after the sale? Do you want one of your colleagues or children to take over? How does that affect the amount of money you can expect to get up front? Is your business one where your personality and abilities are critical to the value of the company? You may need time to hire and train key people, and gradually put more distance between yourself and the company.

There are several ways to exit:

Sell your business.
Have it acquired by another company.
Pass the reins to another family member.
A manager, an employee, a colleague buy-out
Or, just close the doors.

Exit Strategies That Fail

Selling your business on short notice or simply closing the doors, are the simplest options, and the ones with the least financial reward. But they can happen if your official exit strategy is to manage your business until you wake up one morning and say, "Forget it! I can't do this any more." At that point, you can start looking for an exit and take whatever you can get. Unfortunately, that will probably be a great deal less than if you strategize while you are still enthusiastic about the business.

Plan to Succeed

Say you've decided you are retiring to that island paradise. Add it to your business plans, but don't buy the island, yet. Remember that keeping your end goal in mind, while staying flexible about how to get there, increases your success. Plan to succeed at any time, no matter what unexpected thing happens.

Understand Your Market

That's what you do best, here's how to apply it to your exit strategy. Think about the type of buyer you want to target, because different buyers have different motivations. You are offering value to the target buyer, and it is related to your core competencies. Targeting a group of buyers is just like designing your marketing plan. It is built around your competitive edge, and flows directly from what you are good at. Develop a niche market, similar to how you target clients.

Look for a buyer that shares your vision. If you are selling to a colleague, they may want to keep your name and phone number as well as your client base. Have you done a good job of branding, so that the business is easily transferable? If your exit strategy is to sell your company to your partner, your employees or your heirs, you need to take a hard look at your income needs. If cash flow is critical, maybe you want to target buyers who have the financial structure to purchase outright.

Ten Things You Need to Know About Exit Strategies

Decide where you want to be in five years, 10 years, 20 years.
Make sure your employees know your goals or growth and change.
Stay flexible, and have a backup plan because business, life and goals change.
Update your business plan, and make sure it includes an exit strategy.
Keep your financials current, and have them audited yearly. It adds to their value.
Put together a team of experts, including a CPA, an attorney and a financial advisor or other expert for valuing your business and intellectual property.
Run the company every day as if it were going to be sold.
A mistake is thinking that it will be easier getting out than it was getting in.
Prepare a "selling your company" file and checklist for monthly/annual reviews to keep on track to meet your goals.
Attempting to sell your business on short notice means that you are not in control of the sale.

Do an Annual Check-up

Look at your business every year as if you wanted to purchase it. This helps you keep your focus on maximizing the right things. Check things like: overall appearance, whether your equipment and systems are up to date, your financial records, pending litigation, and customer files.

Tax Consequences

Minimizing your tax liability lowers the value of your company on paper. Consider the techniques necessary to maximize your company's value as well as limiting what you pay in taxes. Make sure you have a good CPA on your team to advise you of the tax consequences of your strategy - from capital gains to inheritance tax.

Work With Experts

You will need a team of experts to help you value and sell your company. These include: an independent financial analyst or other valuation expert, your accountant, and your attorney (including one specializing in intellectual property and copyright law). Their years of education, and years of experience will give you the skills needed to get the best deal possible. Make sure your team will look after your best interests and provide guidance regarding financing, coordination, and negotiating your exit preparation and sale of your business.

Putting Together Your Team

There are a lot of resources for finding your team: professional organizations, asking your business banker, a business attorney, and Internet listings. You may have colleagues or friends who have recently sold, and I will be mentioning a few.

The Checklist

I included a checklist in the Resource & References page for information you will need to have available for prospective buyers of your company. It includes questions about finances, market, operations, facilities and staff.

How Do You Get the Right Price for Your Company?

To determine the fair market value of your company, a valuation report should be prepared by hiring a third party, such as an independent financial analyst. You won't be faced with continually lowering the price you have in mind during negotiations, in order to finally find out what the market will bear.

In our business, there are clients who have come to depend on you. You have developed a revenue stream and intellectual property that makes getting the right price easier. Knowing what your company's worth on a yearly basis will pay dividends!

Valuation Basics

There are several methods used to value companies. I have included an article on Valuation Methodologies in the Resources & References page. Your specialist needs to be familiar with valuing Intellectual Property, as well as traditional methods, in order to ensure that you get the right price for your business.

Work Plan

Always protect your business data and trade secrets. Never reveal too much too soon. Don't disclose any detailed financial information until you and the buyer both sign a confidentiality agreement. Make sure you have your attorney review the deal and advise you, but negotiate the deal without your attorney being present. Most lawyers are focused on a win-lose strategy, and may short-circuit creative negotiations to achieve win-win. Different methods of buy-outs, agreements and covenants as well as how to structure and close the deal, are listed in the Work Plan article in the back of this booklet.

Contracts

I have included a sample contract and letter of intent in the Resources & References page to show some of the items you and your prospective buyer may include in the negotiation. Don't close the deal without an attorney. This contract is the accumulation of years of your hard work building your business... a small omission could cost you a lot of money.

Third Beach Umbrella From the Left

Is that your plan? Have your ducks in a row, right from the start, and it will be! Should you have to exit sooner than expected, it will be! So, maximize, maximize! Do your homework now! And it will be!

see:
Exit Strategies: What's Yours?
Exit Strategy: Resources & References

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ALICE HELD

(877) 266-3229.