Business Planning - Know Your Exit
Insights from High & Younes Law Firm
An exit strategy may be the last item you consider when operating your current business or buying a new one. However, there is no question that at some point, it will be a crucial piece of your return on investment.
Many exit plans exist but only one is the best for you and your family. It is a necessity to determine which exit plan is best from the beginning, especially when involved in a multi-member organization. The different types of exit plans include:
- A succession plan;
- Transfer of ownership interest to an heir during the owners life, or upon death;
- Transfer of ownership interest to another member;
- Sale of ownership interest to a third party; or
- Liquidation and dissolution of the business.
A properly developed exit plan will provide benefits to any business, including:
- Improve the probabilities of success;
- Increase the valuation of the sale price;
- Prevent complacency;
- Provide a timetable for growth;
- Providing realistic goals for growth; and
- Prevent litigation.
Many unexpected events may cause need for exit, which if not properly planned could result in disagreements among partners, conflict, litigation, confusion for family, dissolution of the business, forced sale at a lower than desired price, and decreased profitability. Such events include:
- Unexpected offers to one or more members;
- Health or family crisis;
- Age or retirement;
- Market changes;
- Death of the sole member or one of multiple members; and
- Partnership disagreements and falling outs.
An exit plan is extremely important for all businesses. In multi-member organizations customized planning in partnership documents can prevent conflict surrounding the buy-out price, or sale by one partner to a third party. In the event of one partner buying out another partner, voluntarily or involuntarily, conflicts can be avoided by including either a pre-determined purchase price or calculation of a purchase price within the organizations documents. Further, decisions regarding right of first refusal, tag-along and take-along should be made in the organization documents to guard against conflict when a partner receives an offer for purchase of his/her ownership interest. Such determinations provide all members the option of exit or purchase when a changes occur in the ownership structure.
I urge any business owner(s), whether sole proprietorship, partnership, LLC, or corporation, to protect themselves and their business by investing in an appropriate exit strategy. You may contact the law offices of High & Younes, LLC., at 402-933-3345 for a free consultation.