Multi-Unit Franchisee Magazine Issue III, 2014 | Page 82

ExitStrategies
BY DEAN ZUCCARELLO

Ready To Sell
Your Business?
Planning a comprehensive exit strategy

P

lanning, planning, planning. We
all participate in some form of
planning: what to do with our
weekend, scheduling all the kids’
activities, forecasting next year’s business
plans, and maybe even “someday” plans.
But how many of us have actually considered or created a plan that addresses
not only how and when we will exit our
businesses, but also whether and how
family members and/or related parties
will be a part of that plan?
In our 24 years in the restaurant and
franchise M&A space, we have witnessed
numerous occasions in which a potential
seller decides it’s time to sell their business—but has not adequately addressed
such crucial items as timing, valuation,
tax consequences, succession planning
for family members, or the future of their
management team. The result: a false start
to the process, a disappointed seller when
the “I didn’t think of that” realization sets
in, and a transaction that never really gets
off the ground.
It’s not difficult to envision how this
happens. You hear that your friend just
sold his business for some incredible
EBITDA multiple, or that investors are
beating down the door to get into your
system, or that lenders are giving away
money, no questions asked. Never mind
that in most cases the information floating about is incomplete or incorrect. Or
maybe an unsolicited offer comes in. Your
thoughts turn to “I better get a piece of
this action before the window closes” and
you’re off to the races. But this is a kneejerk reaction, not a well-thought-out,
proactive, thoroughly planned process.
Until you have “checked the boxes” of a
comprehensive exit plan, you are not really a ready, willing, and able seller, and
are not likely to complete a successful
transaction.

80

MULTI-UNIT FRANCHISEE IS S UE III, 2014

First things first
When creating an exit and succession plan
many important factors must be considered and addressed up front:
• What is the preferred timing of an exit?
• If the exit will involve a third-party
buyer, how will it be valued, marketed,
and sold when the time comes?
• Are there family members (or related
parties) active in the business who would
like to carry on the legacy?

Until you have
“checked the boxes”
of a comprehensive
exit plan,
you are not really
a ready, willing,
and able seller, and
are not likely to
complete a successful
transaction.
• If so, are they truly capable?
• Is the existing management team
capable (and desirous) of continuing to
run the business?
• Is there a need for additional professional management?
• Will this option produce sufficient
liquidity and/or income to meet your
expectations as a seller?
• What are the tax consequences, and
how does that affect the ultimate structure of an exit?
Once you have formulated clearly defined answers to these questions, you can
proceed to define the specific mechanics
of a succession plan.

Options to consider
1) Sale to third party. If your succession plan includes a transfer of your
business to a third party, you must address
several important factors:
Timing: Is it best to target a specific
retirement age, sell at an opportunistic
market time regardless of a targeted retirement age, or have my estate sell the
business upon my death?
Valuation: How can I determine the
true market value of my business? What
is the best resource available to assist with
this critical part of the exercise?
Buyers: What is the profile of an ideal
buyer? What is the ideal resource available to me to tap into the pool of the most
qualified buyers?
Marketing: How can the business be
presented in the best light to the best buyer
candidates? What resource is best suited
to address and deliver on this approach?
Stock or asset sale: Will you sell the stock
or the assets of your company? Would you
take stock as payment from the acquiring entity, or cash only? How will you
ascertain the tax consequences of each?
2) Succession planning (family). If
the opportunity allows and the decision
is made to transfer business ownership to
family, you will need to decide if ownership is sold or gifted (or some combination thereof), and whether that process
takes place during your lifetime or upon
your death. In any case, you will need to
determine who will control the business,
who will own the business, and who will
manage the business.
If a transfer to family will involve gifting, there may be estate tax