Exit Strategies

Sam and Louie had been in business for about ten years, operating a chain of retail clothing stores. They were 50/50 owners in the corporation. When Sam approached us he had already been working for about 9 months to try to come up with a proposal which Louie would accept for dividing up their operations.

While they had gotten along well in the early years, Louie's hidden substance abuse problem had gotten the best of him. He wouldn't consider any type of reasonable purchase by Sam or a sale by Sam to Louie. Sam and Louie had never entered into any type of a Buy-Sell Agreement, based on the belief that they would always be able to work things out. No type of mediation was successful. Louie was simply unreachable regarding any type of purchase and the two were deadlocked and unable to reach agreement on any operational issues that needed to be dealt with...

Craig had a sales organization which he had built but had just recently suffered a serious setback when he came to us to talk about his Transition Growth Planning. He had helped develop three key employees whom he felt were primed and ready to eventually take over and purchase the business from him. Unfortunately, he had not yet communicated his vision for these employees to the employees themselves. Shortly before he met with us, these three key employees decided that their best future would be to develop a new business on their own. So they left Craig and took their book of business with them. Much of this business had been initially developed by Craig, who had been transitioning his contacts over to these three individuals.

We have identified the top 12 principal reasons we've seen where business owners have failed to plan, which has caused their transitions and exits to be unsuccessful...

Sam had developed and owned a successful retail operation during his business career. He also tried to be diligent by having what he thought was a sound estate plan executed before he died. He and his wife Sally felt they had everything taken care of. So when Sam died unexpectedly, Sally was dismayed to see the vehement dispute that developed between her two sons as to who would operate the company going forward. Apparently Sam had spoken to both of them about running the company if something happened to him, but he had failed to make this decision. Sally ultimately found her only choice to resolve the dispute was to just sell the business.

We have identified the top 12 principal reasons we've seen which have caused business owner transitions and exits to be unsuccessful...

John had come to us with high expectations for the price he thought his company would sell for. He was certain of this because he had seen other companies sell for a similar multiple of gross revenue. However, what John had failed to understand was that buyers are only partly interested in top line revenue. More important to negotiating the selling price of most companies is the net cash flow the company produces. John's bottom line failed to live up to industry standards, which meant he wasn't likely to achieve the exit he had envisioned.

We have identified the top 12 principal reasons we've seen which have caused business owner transitions and exits to be unsuccessful. Each of these reasons impacts the company's ongoing annual profitability as well as an owner's transition and future exit results...

We weren't surprised by our meeting with Art. We had seen it many times before. Art and his son had founded and built a very successful retail business. They had operations across the country which were consistently producing significant year-to-year net cash flow. Art had decided recently that he was ready to sell the company and that he wanted to get this done right away.

However, as we began to visit, it was obvious Art had some roadblocks in his path that would take some time to overcome. He and his son clearly had significant differences about the future which Art was finding at this late date were becoming more and more difficult to resolve.

We have identified the top 12 principal reasons we've seen which have caused business owner transitions and exits to be unsuccessful...

Business cycles are the norm and while difficult to predict, peaks and valleys in our economy will always occur. However, the speed and magnitude of deterioration in worldwide business conditions and financial markets make the current recession especially severe. As everyone now knows, this is not a normal trough or business cycle; survival and success during these times will require extraordinary actions.

So what actions should restaurant companies consider to persevere in this extraordinary economic environment? The first critical point to remember is that "Fear is the Enemy." It is easy to become paralyzed by the current state of affairs and take no action, waiting and hoping that conditions will improve. Understandably, every company's situation is different and current actions will be dictated by individual circumstances...

We weren't surprised by our meeting with Art. We had seen it many times before. Art and his son had founded and built a very successful retail business. They had operations across the country which were consistently producing significant year-to-year net cash flow. Art had decided recently that he was ready to sell the Company and that he wanted to get this done right away.

However, as we began to visit, it was obvious Art had some roadblocks in his path that would take some time to overcome. He and his son clearly had significant differences about the future which Art was finding at this late date were becoming more and more difficult to resolve.

When franchise sellers seek exit strategies, they most often look to strategic buyers, other franchisees, their franchisor, or financial investors such as private equity as potential buyers for their businesses.

While these groups are often "top of mind" given their predominance of activity in the mergers and acquisitions marketplace, they do not represent the only opportunities for seller liquidity. Often overlooked is the company's existing management team or a key individual who may be qualified to complete a transaction while offering unique transaction structures to the selling parties.

More often than not, entrepreneurial sellers overlook their existing management team as a potential acquirer. Reasons for this range from capital resource issues to confidentiality...