Exit planning

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Exit planning is the preparation for the exit of an entrepreneur from his company to maximize the enterprise value of the company in a mergers and acquisitions transaction and thus his shareholder value, although other non-financial objectives may be pursued including the transition of the company to the next generation, sale to employees or management, or other altruistic, non-financial objectives. [1] Exit planning differs from succession planning in that the later is a sub-component of exit planning, and refers to the hiring, training and retention of a successor President/CEO of the company in a planned manner. [2] Succession Planning is but one of the many considerations when conducting exit planning. [3] Company owners commonly do not see their company from the standpoint of a potential buyer, and thus, ignore the strategic management of the company. [4]

To achieve their desired outcomes, business owners often focus their attention on exit planning from the beginning of the investment, in order to prepare adequately for trade and financial sales, make effective use of the buy back option, market their businesses more widely for sale, use intermediaries and get the support of management [5] Significant value is lost due to an absence of or inadequate exit planning. Roughly 30% of businesses will be transferred to family member in some manner, 18% intend to sell to its employees, and many will simply be closed. [6] Up to one-third of businesses that are closed were successful at their termination [7]

The three sources of enterprise value in a company are firstly the value of its tangible assets, and secondly the value of its intellectual capital (intangible assets), which consist of human capital, relational capital, and structural capital (including is subcomponents organizational capital, innovation capital and process capital. Most of a middle-market company's and lower middle market company's value is derived from its relational capital, specifically, its customer relationships. [8] [9] SMEs, also referred to as middle market companies, create innovation capital (part of structural capital). [10]

Most small-to-medium-sized businesses use a boutique investment bank to market their company in a mergers and acquisitions transaction to potential buyers. Some boutique investment banks also offer exit planning preparation, while certain consulting firms offer one or more of the services needed to conduct exit planning, such as human resources, in connection with succession planning.

Private Equity Groups are common acquirers of middle market businesses, whether as Platform companies or add-on or tack-on acquisitions.

In addition to business aspects, personal considerations need to be taken into consideration, including considerations about estate taxes, capital gains taxes, or other taxes. [11]

Related Research Articles

Mergers and acquisitions Type of corporate transaction

In corporate finance, mergers and acquisitions (M&A) are transactions in which the ownership of companies, other business organizations, or their operating units are transferred or consolidated with other entities. As an aspect of strategic management, M&A can allow enterprises to grow or downsize, and change the nature of their business or competitive position.

Business Organization undertaking commercial, industrial, or professional activity

Business is the activity of making one's living or making money by producing or buying and selling products. It is also "any activity or enterprise entered into for profit."

A startup or start-up is a company or project undertaken by an entrepreneur to seek, develop, and validate a scalable business model. While entrepreneurship refers to all new businesses, including self-employment and businesses that never intend to become registered, startups refer to new businesses that intend to grow large beyond the solo founder. At the beginning, startups face high uncertainty and have high rates of failure, but a minority of them do go on to be successful and influential.

Succession planning is a process and strategy for replacement planning or passing on leadership roles. It is used to identify and develop new, potential leaders who can move into leadership roles when they become vacant. Succession planning in dictatorships, monarchies, politics, and international relations is used to ensure continuity and prevention of power struggle. Within monarchies succession is settled by the order of succession. In business, succession planning entails developing internal people with managing or leadership potential to fill key hierarchical positions in the company. It is a process of identifying critical roles in a company and the core skills associated with those roles, and then identifying possible internal candidates to assume those roles when they become vacant. Succession planning also applies to small and family businesses where it is the process used to transition the ownership and management of a business to the next generation.

Venture capital Form of private-equity financing

Venture capital (VC) is a form of private equity financing that is provided by venture capital firms or funds to startups, early-stage, and emerging companies that have been deemed to have high growth potential or which have demonstrated high growth. Venture capital firms or funds invest in these early-stage companies in exchange for equity, or an ownership stake. Venture capitalists take on the risk of financing risky start-ups in the hopes that some of the firms they support will become successful. Because startups face high uncertainty, VC investments have high rates of failure. The start-ups are usually based on an innovative technology or business model and they are usually from high technology industries, such as information technology (IT), clean technology or biotechnology.

Small business Business with fewer employees or revenue

Small businesses are corporations, partnerships, or sole proprietorships which have fewer employees and/or less annual revenue than a regular-sized business or corporation. Businesses are defined as "small" in terms of being able to apply for government support and qualify for preferential tax policy varies depending on the country and industry. Small businesses range from fifteen employees under the Australian Fair Work Act 2009, fifty employees according to the definition used by the European Union, and fewer than five hundred employees to qualify for many U.S. Small Business Administration programs. While small businesses can also be classified according to other methods, such as annual revenues, shipments, sales, assets, or by annual gross or net revenue or net profits, the number of employees is one of the most widely used measures.

Small and medium-sized enterprises (SMEs) or small and medium-sized businesses (SMBs) are businesses whose personnel numbers fall below certain limits. The abbreviation "SME" is used by international organizations such as the World Bank, the European Union, the United Nations, and the World Trade Organization (WTO).

Funding is the act of providing resources to finance a need, program, or project. While this is usually in the form of money, it can also take the form of effort or time from an organization or company. Generally, this word is used when a firm uses its internal reserves to satisfy its necessity for cash, while the term financing is used when the firm acquires capital from external sources.

A micro-enterprise is generally defined as a small business employing nine people or fewer, and having a balance sheet or turnover less than a certain amount. The terms microenterprise and microbusiness have the same meaning, though traditionally when referring to a small business financed by microcredit the term microenterprise is often used. Similarly, when referring to a small, usually legal business that is not financed by microcredit, the term microbusiness is often used. Internationally, most microenterprises are family businesses employing one or two persons. Most microenterprise owners are primarily interested in earning a living to support themselves and their families. They only grow the business when something in their lives changes and they need to generate a larger income. According to information found on the Census.gov website, microenterprises make up 95% of the 28 million US companies tracked by the census.

Business development entails tasks and processes to develop and implement growth opportunities within and between organizations. It is a subset of the fields of business, commerce and organizational theory. Business development is the creation of long-term value for an organization from customers, markets, and relationships. Business development can be taken to mean any activity by either a small or large organization, non-profit or for-profit enterprise which serves the purpose of ‘developing’ the business in some way. In addition, business development activities can be done internally or externally by a business development consultant. External business development can be facilitated through Planning Systems, which are put in place by governments to help small businesses. In addition, reputation building has also proven to help facilitate business development.

Mittelstand Small and medium-sized enterprises in German-speaking countries

Mittelstand commonly refers to a group of stable business enterprises in Germany, Austria and Switzerland that have proved successful in enduring economic change and turbulence. The term is difficult to translate and may cause confusion for non-Germans. It is usually defined as a statistical category of small and medium-sized enterprises with annual revenues up to 50 million Euro and a maximum of 500 employees.

Entrepreneurship is the creation or extraction of economic value. With this definition, entrepreneurship is viewed as change, generally entailing risk beyond what is normally encountered in starting a business, which may include other values than simply economic ones.

Enterprise Capital Funds are financial schemes established by the Department for Business, Innovation and Skills (BIS) in the United Kingdom to address a market weakness in the provision of equity finance to UK small and medium enterprises (SMEs). Government funding is used alongside private sector funds to establish funds that operate within the "equity gap"; targeting investments of up to £5 million that have the potential to provide a good commercial return. The first five funds supported under the scheme were launched in 2006-7 following a pathfinder competition. A further three funds were awarded ECF status in 2007. As of November 2019, 29 ECFs have been launched.

This article covers the best practices and needs for reform in entrepreneurship policies in Egypt.

Entrepreneurial finance is the study of value and resource allocation, applied to new ventures. It addresses key questions which challenge all entrepreneurs: how much money can and should be raised; when should it be raised and from whom; what is a reasonable valuation of the startup; and how should funding contracts and exit decisions be structured.

The term nano gap was coined by accounting firm Deloitte to describe the shortage of capital to fund the retirement of baby-boomer entrepreneurs seeking to sell their small, medium enterprises (SMEs). In the Deloitte report: "Micro-cap typically refers to those companies with an equity value of less than $250 million. Nano-cap is another term that is used to refer to companies with a value of less than $10 million."

The Industrial Development and Competitiveness Center is a Dominican corporation that serves as a regulatory and representative body of every project, plan and actions of the Industrial Sector of the Dominican Republic, with the goal of making it competitive.

A founder CEO is an individual who establishes a company and holds its chief executive officer (CEO) position. If the firm's CEO is not a founder or the founder CEO is succeeded, the firm is said to be led by a non-founder CEO or successor CEO.

Small and medium-sized enterprises are called as KOS or KOM in Azerbaijan. SMEs have a leading position in the provision of economic growth and employment in Azerbaijan.

References

  1. ↑ Kupferman, Martin (2002-12-23). "Savvy exit strategies for mid-sized companies". Journal of Corporate Accounting & Finance. 14 (2): 9–12. doi:10.1002/jcaf.10130. ISSN   1044-8136.
  2. ↑ Sharma, Pramodita; Chrisman, James J.; Chua, Jess H. (2003-03-01). "Succession Planning as Planned Behavior: Some Empirical Results". Family Business Review. 16: 1–15. doi:10.1111/j.1741-6248.2003.00001.x.
  3. ↑ Hawkey, John (2002). Exit Strategy Planning: Grooming Your Business for Sale Or Succession. Gower Publishing, Ltd. ISBN   978-0-566-08498-0.
  4. ↑ Kuhn, Robert Lawrence (1996). "Building Value into the Entrepreneurial Company". In Matthews, Jana (ed.). Leadership and Entrepreneurship: Personal and Organizational Development in Entrepreneurial Ventures. Greenwood Publishing Group. p. 127. ISBN   978-1-56720-043-0.
  5. ↑ Wall, John; Smith, Julian (1997-11-30). "Better Exits" (PDF). The Journal of Private Equity. 1 (2): 31–43. doi:10.3905/jpe.1997.409667. ISSN   1096-5572.
  6. ↑ Holaday, David W. (2006). "Exit Plans for Financed Life Insurance: Preparing to Cross That Bridger before Coming to It". Journal of Practical Estate Planning. 8: 15.
  7. ↑ Marks, Mitchell Lee; Vansteenkiste, Ronny (2008). "Preparing for organizational death: Proactive HR engagement in an organizational transition" (PDF). Human Resource Management. 47 (4): 809–827. doi:10.1002/hrm.20246. ISSN   0090-4848.
  8. ↑ Welbourne, Theresa M.; Pardo-Del-Val, Manuela (2009). "Relational Capital: Strategic Advantage for Small and Medium-Size Enterprises (SMEs) Through Negotiation and Collaboration". Group Decision and Negotiation. 18 (5): 483–497. doi:10.1007/s10726-008-9138-6.
  9. ↑ Lervik, Elisabeth (2006). Relational capital: A study on its importance, quantification and its impact on business sectors and markets (Masters thesis). University of Oslo. hdl:10852/17777.
  10. ↑ Susman, Gerald; Warren, Anthony; Ding, Min; Stites, Jenna P (2006). "Product and service innovation in small and medium-sized enterprises". Research Sponsored by United States Department of Commerce-The National Institute of Standards and Technology Manufacturing Extension Partnership. S2CID   212618078.
  11. ↑ Foster, Gregory L. "Estate Tax Issues for The Family Owned Business". fambusiness.org. Archived from the original on 2011-08-31. Retrieved 2019-09-24.
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