The following case study is based on a true story. It highlights the importance for owners of closely held businesses the need to engage an experienced and professional exit planning team. The risks of losing value in terms of price and time is great even if the company is executing a planned sale to key employees. They should consult with an experienced team of advisors, like our NAVIX Consultants.
One of the four possible exit strategies available is to sell the closely held businesses to an inside buyer, such as a partner or key employees. We call this an Innie Exit Strategy. It is quite difficult to facilitate because of the following challenges:
- Willing Buyer/Willing Seller – A sale can only occur between a willing buyer and a willing seller. Exiting owners cannot compel other owners or key employees to buy their interest.
- Missing Components – Key employees often lack cash, collateral, and, most importantly, an appetite for risk.
- Taxes – Without proper planning, the IRS can be the biggest benefactor at exit. Taxes can add up to 90% or more of the total value transfer.
- Golden Goose – The business must survive the transition and change. It is the golden goose which generates free cash flow to facilitate the exit.
- Professional help – exiting owners need to work with advisors who are experienced in helping clients achieve successful exits.