To survive and thrive in the ever-changing landscape of the global market, Foreshadowing, strategizing, and careful implementation of strategies have always been the essential tools in managing any business. Likewise, planning an exit strategy, succession planning, or business transfer is vitally important, especially for the Advisory Practice Business.
What exactly Is an “Exit strategy”?
It is a strategy applied by an investor to pull back his cash from an investment with the consent of the shareholders in the company. Simply put, it’s wrapping up your involvement in a business.
Since it is a strategy applied well in the future, very few investors are aware of its impact. Failure to plan for the future correctly will not only affect the survival of the organization, but it will also have a severe effect on the company’s supply chain, local employment, and in turn, the local economy. It is for this reason investors ask Advisory Practices to plan out their exit strategies.
Optimum Time to Plan an Exit strategy:
An ideal time for an investor to plan an exit strategy is in the initial business phase. But it can also be scheduled during business with careful consideration of your overall goal and how well prepared you are for an exit. The level of desirable control and involvement, willingness to accept change in traditional practices, among many others, turn out to be the deciding factors in your exit strategy.
Your Options: Which One’s Best For You?
Your choice of exit plan can affect your business development decision, so it is understandable why choosing the perfect strategy for your advisory business is a tricky decision.
Initial Public offerings (IPO), Strategic Acquisition, and Management buyouts (MBO) are some of the most frequently used strategies to exit businesses. Of these, IPOs are considered the best among all exit strategies because they bring the highest payoff and most significant prestige.
The less apparent options include transfer to a family member, management teams, and employee stock ownership plans (EOPs), each with its own perks and flaws
The most important thing to remember here is that there are other options other than selling. Consult Advisory Practice and pick an option that best suits your needs, your desired level of liquidity, and investment philosophies.
1.Merger and Acquisition:
As the name implies, it is an act of merging with a business entity or acquiring one. Usually, A large and financially strong business acquires a small business. On the other hand, if two firms are similar, they typically merge.
You have to do some careful research before you take this step because advisory practices do not have the best statistics when it comes to mergers and acquisitions. According to a study conducted in 2018, less than 25% of advisory business acquisitions are truly successful.
Make sure you check the important aspects such as cultural conflicts, revenues, practice size, etc. before you approach a merger or acquisition.
Pros: If the skills on both sides complement each other, mergers and acquisitions can prove to be a perfect exit strategy.
Cons: Clash of cultures, higher prices, layoff dilemma are some of the major cons concerning M&A.
2.Selling to an Outside Source:
Not to be confused with M&A, since it is not combining two entities into one. It is best suited for those who are truly ready to leave and are not concerned about giving up control of the business.
Pros: Get the highest value from the exit by selling to someone in their business (or a related industry).
Cons: The downside is walking away from a company that took years of hard work and dedication to build.
3.Bring on and Prepare a Junior
Interestingly, professionals providing advisory services in the finance sector age 56 on average. Somehow, they are bound to think about an exit strategy because of aging. However, rather than making an instant exit, they can consider hiring and preparing a junior advisor. Afterward, they can slowly transfer their responsibilities to the junior. This exit strategy is one of the most sophisticated out there since it helps advisory practice owners to work on retaining their reputation by training the junior on day-to-day affairs.
It is the best option for you if you have saved for the financial future and want to pass the business to the management team.
Pros: The success of this option is dependent on the circumstance of the business and the people involved.
Cons: These types of transfers take years to implement correctly, and it may not be attractive to a buyer when interest rates are high.
5.Employee Stock Ownership Plans (ESOPs)
It is powerful to exit strategy for business owners who are not ready to give up control but require diversification and liquidity.
Pros: ESOPs can be customized, combined with other options, and implemented over several years to meet an individual’s needs.
Cons: A complex process that is not applicable in every situation and needs.
6.Bringing In a Financial Partner
Finding a friendly financial partner is best suited if you require retention of operational control through employment agreement, the firm sells strategic and financial controls.
Pros: The upside to this transaction is that you can continue to work in your business, receiving income, and participate in the future value of the business when it is resold later.
Cons: The downside is that you become an ’employee’ of your new owner.
7.Liquidation and Closing:
In a situation where your business is failing, or it isn’t valuable enough for anyone to acquire it, you are better off walking away from after clearing your dues and credits.
Filing for voluntary liquidation and making formal and informal arrangements to pay off your creditors are two common ways to close down your operations. All of these will result at the end of your business. With bankruptcy, you have a way to walk right back into action again. However, bankruptcy is an exit strategy that you should only consider as a last option.
When to Consider Selling
When faced with a lack of working capital, Disbandment of a partnership, Death or disability of one of the owners, Unplanned financial needs, Failure to meet the need for new skills or resources for the company, or retirement is when an investor thinks of selling their business. To gain all the underlying financial benefits when you do decide to sell can be obtained by consulting with expert Advisory Practices that can help you plan your succession with ease.
So you see, planning a succession plan, exit strategy, or business transfer, in the end, creates a safety net of knowing the best option for you and the company. It helps align your day to day operations and strategic decisions so that the company is better prepared to reach its long term goals. That’s why it is never too late to start planning your exit strategy.
Visit us at https://www.advisorsuccessions.com/to learn more about how Advisor Successions can help you in selecting the right exit goals!