Skip to main content

How COVID-19 Might Affect Your Exit Plan

Team Jackson, MS

COVID-19 has been the source of unprecedented business uncertainty. Many owners are re-evaluating their exit plans, or planning for their business’s future for the first time. Here’s what you need to know about designing your exit plan during a pandemic.

Create or Edit a Plan
A good exit plan is a living document that you continually revisit and revise. It should address every aspect of your business’s transition, including wealth management, planning for the future of your company, and retirement goals. Consider how COVID-19 may have affected your business exit timeline, access to qualified buyers, and specific exit options.

If you didn’t have an exit plan before the pandemic, now is the perfect time to draft one.

Don’t Forget About Wealth Planning
A good exit plan is fully integrated into your wealth plan. You must carefully assess how exiting your business will affect your personal finances, because that can color your decisions. As part of wealth planning, you must identify clear goals and objectives. Create a timeline that works for your business and your family, then budget so you know exactly which financial resources you need for your ideal retirement.

Exit Strategies
No magical formula can identify the perfect time for an exit. Instead, you need to assess your personal financial plans, as well as your ideal business future. No matter when you exit, your company must be well positioned to succeed in your absence. Some important factors that can affect the outcome of a sale include:

  • Decreasing owner dependence. Successful businesses don’t need their owner to thrive. Reduce dependency and find ways to promote competence among managers and key employees. A strong management team is a key selling point.
  • GAAP compliance. Buyers hate risk, especially during a pandemic. You need clean financial statements. Be prepared to document that your booking is GAAP compliant, and be sure to document any GAAP deviations so you can understand their effects.
  • Retain key staff. Your workforce will be anxious about any transition. You must anticipate and explain how a leadership change might affect them. Incentivize key staff to remain on board, since they may be a key selling point during the merger.

Known Your Exit Options
There are several ways to exit your business. The most popular—and the most demanding—is an external sale. It is not yet clear how COVID-19 will affect the M&A market, but sales will likely slow, at least over the short-term. If you are planning to sell in the near future, now is the time to assess how your business compares to other companies, particularly in a challenging market. You will have more options for a lucrative sale if you begin making your business an attractive target now. That means strengthening your management team, improving profits, getting your books in order, and exceeding the performance of your competitors. An advisor is a vital member of your team who can help you objectively evaluate your exit options.

Another option is to use an employee stock ownership plan (ESOP). This qualified retirement plan allows employees to invest in employer stock, making them all owners. These plans are generally income tax exempt. We expect that in the near future, ESOP lenders and trustees will increasingly scrutinize the performance of these plans.

Next Steps
While business is far from “business as usual” and will be for a while, deals can and will close with the proper focus. Some of the best opportunities arise in times of difficulty for those who have the foresight, determination, and courage to make things happen.

The team of M&A professionals here at Strategic M&A Advisors includes business advisors, corporate risk managers, accountants and attorneys who specialize in middle-market mergers and acquisitions. Our expertise covers the entire spectrum of business M&A.

The first step in working with Strategic M&A Advisors is to contact us to schedule a confidential, no-obligation (and no-cost) conversation at a time and place that’s convenient for you. This will enable us to learn more about your business and your M&A goals while explaining how we can help you achieve your goals.

About Strategic M&A Advisors

Business sales come in all shapes and sizes. At Strategic M&A Advisors, we can help you determine the most advantageous option for selling your business. We handle all types of merger and acquisition transactions, from outright sales to investment options to grow your business. The first step is an evaluation of your business and goals to determine the best path to get the results you desire. If it is the right time to sell, we will assist you in finding vetted buyers or investors and getting the best price and terms for your transaction.

Posted on behalf of Strategic M&A Advisors

Contact us

    Arkansas (501) 588-8855 Mississippi (601) 714-2777