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Creating an Exit Strategy for the Small Business Owner

© 2019 The ShinerGroup. All rights reserved. 1

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Leslie Shiner

September 5-6, 2019 | Boston, MA

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Copyright Materials

This presentation is protected by US and International copyright laws. Reproduction, distribution, display and use of the presentation without permission of the speaker is prohibited.

© 2019 The ShinerGroup. All rights reserved.



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• Owner of The ShinerGroup

• Financial & management consultant for over 25 years– MBA in Accounting and Finance from U.C. Berkeley

– Advanced QuickBooks ProAdvisor

– Sage Certified Consultant

• Contributing Columnist– Remodeling Magazine, JLC Magazine

• CPA Practice Advisor Top Thought Leader

• Author– A Simple Guide to Turning a Profit as a Contractor

– (www.MoneyMazeBooks.com)

Leslie Shiner

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Learning Objectives

•Understand the two primary strategies

•How to choose between the two strategies

•Key steps to take once an exit strategy has been chosen



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• A business owner who works and runs their business alone

– About a third of the American workforce comprising freelancers and consultants fit under category

– Just because you work alone, doesn’t mean you don’t collaborate with other entrepreneurs

What is a Solopreneur?

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What is Your Organization Chart?

CFO CFO COOCOO

A/PA/P A/RA/R SalesSales

CEOCEODoes it look like this?



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• You can grow your business through hiring employees

• But there are other ways to grow your business

– You can outsource work

– You can increase your rates

– You can do fixed price work

– Etc…

Have You Hired Employees? (Or Tried to?)

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But What’s Next?

Have you thought about an exit strategy?

Are you planning for the future?



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Warning!

This session doesn’t have all the answers

Ideas to consider are also free

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• Not everyone can sell their business– Hard work does not guarantee success

• Have you been sold a bill of goods?– Work hard, build your company, sell it for lots of money and retire rich and

early!

– However, you are not Elon Musk

• Are you coming up with something unique?– Something no one else does?

– A process that has value?

The Entrepreneur Fallacy



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Three Exit Strategies

•Improvisation

•Liquidation

•Continuation

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• Spend all your time with the day‐to‐day business concerns without considering the future

• Or is it just blissful ignorance?

Improvisation



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• Build a personality‐based business

• Use corporate dollars to grow personal wealth

• When you leave the business, the business ends

Liquidation

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Continuation

Create a business that will provide income after you leave

Build a ‘saleable’ business

Build a ‘scalable’ business

Build a business based on process



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Three Choices

Improvisation

•No strategy

Liquidation

•Build a cash cow

Continuation

•Create a process

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No Matter What Strategy You Choose:

• Ask yourself:– What if I get sick or injured?

• You need a backup plan – Insurance?

• Health, disability, long‐term care

• Succession?– How will my clients’ needs be met?

– Will my clients work with someone else?



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• Also called a “Lifestyle Business”

• The business will end when you retire

– Or die at your desk

Liquidation – Understood

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• Easier to build a personality‐based business

• Focus on building your nest egg,

not necessarily your business

• There is less need to reinvest dollars to build business equity

• You can avoid the hassles of employees

Liquidation Can Be A Strategy



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• If you cannot gain economic benefit from your company beyond your working years, all you’ve done is bought yourself a job

• But having a job where you get to be boss may be your goal

– You control your destiny

– You create your schedule

– You set the rules

• Do you enjoy the freedom of being your

own boss?

Do You Have a Company or a Job?

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Creating a job is a good model if fills your needs

What Are Your Needs?

•Helping people

• Learning new things

• Enjoying being skillful

Emotional needs

• Support your lifestyle

• Support you and your family

Financial needs

• Fund your future?Long‐term needs



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Create a Cash Cow

• Buy a job to create a cash cow

• Pillage and plunder your company to build your personal equity

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Disadvantage of Buying a Job

• Have you sacrificed your life for your business?

– In a competition between your lifestyle and your business, who wins?

• Are you able to build enough personal equity?

– Is that good enough for you?

– Is it good enough for your family?



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Continuation – Understood

Succession can only come from creating a business, not a job

The business must be more process‐based and less

personality‐based

Do you have enough time to create a continuation strategy?

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Ask the Tough Questions

Who can I sell the business to?

How will I find a buyer?

Will he/she have enough skills to run the business?

How will the transition work?

How and when will I be paid?

How can I guarantee payment?



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• An exit strategy is not just who you want to sell the company to

– It’s a well‐defined, long‐term plan that includes:

Create a Formal Exit Strategy

Timing People Process

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Types of Continuation Strategies

Outright sale

Pass on to next generation

Employee buyout

Sell to your competition

Create a partnership



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• If someone is smart enough to know what I know, they are probably already doing it

– Little to no barrier to entry in our profession

• The new owner must make enough money to support themselves and the previous owner

– Does your business produce enough revenue to do this?

• New owners do not have ‘institutional memory’

• Will your clients accept the new owner?

Outright Sale Can Be Difficult

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• Your business must increase the revenue of buyer

– More than what they paid

• What can your company offer to the buyer?

– Expanded services, projects or locations

– Unique software and technology expertise

– Increased client base

– Unique position in the marketplace

Key to Profitable Sale



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• Determine

– Who is interested

– Who is deserving

– Who feels entitled

• Differentiate between “active” and “non‐active” heirs

• Requires good communication skills and strong family relationships

Pass On to the Next Generation

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• Only about 30% of family businesses survive into the second generation

• Only 12% are still viable into the third generation

• Only about 3% of all family businesses operate into the fourth generation or beyond

Family Business Facts



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Employee Buyout

• Emphasizes need for advanced planning

• Drawbacks:– Key employees often lack capital to buy in

– Longer timeframe for transition

– Higher risk if business is a personality based company

• However, hiring and training for succession may help chances of success

• Create a buy/sell agreement– A document that assures the orderly transfer of the business from the

owner to a key employee

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Management Succession

•Create a management team

•Hire and train for succession, speak to succession

•Reward employees that bring in revenue

•Pick and choose the key employee

•Make it expensive for the key employee to leave

•Monitor your own ability to “let go”



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Sell to Your Competition

Quantify the value of your client

base

Find a buyer that has the desire to grow

Find a buyer that has the capacity to

grow

Clearly define a transition

plan

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Create a Partnership

Find your successor

Create a partnership

Identify a buy‐sell agreement

Formalize the agreement

Work to the agreement



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Succession Plan Includes:

•The devil is in the detailsPlan for transfer of

ownership

•Who is the boss today? Tomorrow?Plan for management

succession

•Clients need to feel cared forPlan for client communication

•Are you re‐investing in the company or taking money out of the company?

Plan for investing

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• If the previous owner doesn’t buy into giving up the power, then the transition will fail

– Clients can’t be made to feel like traitors when working with new owner

• Previous owner needs to give guidance but also needs to be willing to step back and allow new owners to stumble

• Don’t create a Beavis and Butthead scenario

Struggles



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• Shareholder agreements

• Buy‐sell agreement

• Employee agreements

• Non‐competition agreement

• Non‐solicitation agreement

Create and Review Paperwork

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• If you are using the most up‐to‐date technology, the value of your company is greater

• Purchasers want a seamless transition without wasting time moving to new systems

• Since we live in a global world, using more cloud based technology opens up your potential buyers to anywhere in the world

Technology Plays an Important Role



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• The strategy you choose for tomorrow will determine how you run your business today!

– The process can takes several years

• Prepare for planned succession…

– As well as accidental or tragic succession!

The Clock is Ticking!

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Set Your Goals

• Personal goals:– Is there life after work?

– Can you separate work from home?

• Financial goals:– What is adequate security for you?

• Business goals:– Do you know what you actually sell?

– You work for your clients, but did you realize that a good client base can work for you?

Depending on your goals, the way you grow your business should align with your end‐game objectives



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Create Reasonable Expectations

How much longer are you going to work?

What will your expenses be after you stop working?

How much are you spending vs. saving

now?

How much is your business worth

today?

How much can your business be worth in

the future?

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Liquidation (Cash Cow)

Continuation (Building Equity)

Determine Your Strategy

Improvisation



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Different Actions for Different Strategies

Liquidation

• Build that cash cow

• Create your own financial stability

Continuation

• Determine type of continuation

• Invest in building company value

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Two Inevitabilities in Life

Death:

–The ultimate exit strategy

Taxes:–Create plan to minimize tax consequences



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Succession Requires Planning

“Planning is an unnatural process; it is much more fun to do something. The nicest thing about not planning is that failure comes as a complete surprise, rather than being preceded by a period of worry and depression.”

Sir John Harvey‐Jones

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There Are No Easy Answers



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•What are your personal issues that can help decide between the liquidation and continuation?

•What is your personal timeline for your exit strategy?

•What steps do you need to take now?

Summary

Remember that the skills that got you where you are today may not be the skills you need for tomorrow

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Leslie C. Shiner, MBA

[email protected]

(415) 383‐6255

www.ShinerGroup.com

www.facebook.com/LeslieShiner

Twitter: @LeslieShiner

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