What is an Exit Plan?

“We’ve Gotta Get Out Of This Place” – classic 1965 song by The Animals

I have come to expect the “exit” question from my mature business owners but I am hearing it more from emerging businesses these days. At times prompted by reaching inflection points, changes in key personnel or just pure exhaustion, owners want to know the best way to “exit stage right.” The key questions center around, “Is the timing right?” and, “Am I at the point of getting the most from what I have built?” Well as Robert De Niro’s character Paul Vitti said in “Analyze This,” “It’s a process.” So let’s take a closer look.

I had the privilege of serving as Chair of the Business Exit and Succession Planning Committee of the NY State CPA Society and we had a process for both of these milestone events. The “seven steps” of an exit plan with some comments follow below:

  1. Identify owner(s) exit objectives. This is the gaiting factor. The owner has to be confident it is time to move on and most importantly, that he or she has something to go to. This is particularly important for more mature owners.
  2. Quantify business and owner financial resources and needs. Tied closely to the first point, the calculation of “what you need” many times governs “what you want.” You have to complete the exercise to calculate what you need to live, and I will assure you your estimate of this amount will be grossly underestimated.
  3. Maximize and protect business value. Performing a SWOT analysis on your business and even some sell-side due diligence (see my 11/18/16 post Seller’s Due Diligence – An Emerging Tool in the Sales Process) will help you clarify how others might see you and what pieces have to be “fixed” before you start on this journey.
  4. Consider ownership transfer to third parties. Sometimes the hardest decision to make; especially for family owned businesses who hate to see control of the company go outside the family. But if liquidity and exit are important, this may be your best alternative.
  5. Consider ownership transfers to insiders. So you want to keep it all in the family. A common transaction is a sale from one generation to the next. It may not maximize liquidity but it accomplishes a very common emotional objective.
  6. Ensure business continuity. Nobody wants to buy a business (or at least pay good money for it) that is winding down or appears to be at the end of its useful life. I know it sounds counterintuitive but regardless of the exit plan, a robust program to keep the business intact and growing should be part of your exit strategy.
  7. Complete wealth and estate planning. Whatever you reap from your successful exit, you need to do some planning in advance to make sure taxes are minimized both for you and your estate.

So there it is; a brief journey through the exit plan process. As you would suspect, there are professionals who can act as your guides to help ensure your plan is a success and as in all things in life, the more time you have to prepare the higher the chance it will be successful. So while it might be “the last thing you will ever do,” follow the process and hopefully your journey will be a success.


Show Me The Money – The Question Early Stage Fund Seekers Are Afraid to Ask

“Fundraising is the gentle art of teaching the joy of giving.” Quote from Henry A. Rosso – fund raising master

Over a long Holiday weekend, I had the chance to read through and comment on a handful of pitch decks. It may have been my good mood, but I really think the quality of these decks is getting better especially as it relates to early stage fundraisers including most of the basic components of a solid deck. There are plenty of guides out there to show what the contents of a deck should be – – in fact we have a good one at our Withum website if you just go to withum.com and search for “pitch deck.” So as Mona Lisa Vito from My Cousin Vinny would say, “So, what’s the problem?”

Despite the better quality, I was amazed to see that except for one deck, there was reluctance for these companies to address the “proverbial elephant in the room” – – namely stating how much money they are looking for and how they are going to use it. It appears to be like the fear of asking someone out on that first date.

So for our fundraising friends out there, here are five simple Dos and Don’ts when it comes to covering the “ask” in pitches:

  1. Do tell investors how much money you are looking for. Be clear about how much and how you are willing to layer rounds in, say as you achieve certain milestones.
  2. Do support this amount with summary (and detail if requested) calculations including a reasonable reconciliation to your basic cash flow. Provide a summary phrase that is descriptive of each major goal. A phrase like “develop a mobile app” is more helpful than “ramp up operations.”
  3. Do indicate to investors your flexibility as to form of investment. If you are comfortable with convertible notes, or SAFE documents or prefer a straight common stock investment, help guide a potential investor.
  4. Don’t show funds will be used to settle old debts or for significant owner salaries. Paying off old problems like existing debt or back pay does not move a business forward. Setting aside an amount for some minimum salary / payment to owners for their survival is not fatal but it probably helps if this can be avoided.
  5. Don’t imply this amount of funds is all you will need unless your projections clearly indicate this to be the case. Nobody likes the gift that keeps on giving. It is a frustration for investors and it is better to state upfront where you expect to be once the money is spent and how you will be positioned for the next stage of your growth.

The punchline here is not to forget the punchline. Just think about telling a long story and leaving that all important ending out. Listeners will look at you quizzically – – they expect – – in fact they demand you bring the story to a close. It is the same with your pitch deck. Potential investors want to know the punchline – – what do you need and how are you going to use it? Teach them the joy of giving.