Business was really beginning to boom in the mid-’90s when we (three majority owners) paid the final check to our previous owner and took possession of our 200-employee company. It was 1995 and our company was growing in the dot-com boom, as well as Chairman Greenspan fueling the economy going into Y2K.

In 1997, the great economy was fostering many initial public offerings and the roofing contractor sector was moving into several “consolidations” with roll-ups hoping to go public. Eventually, we received two offers from consolidators, two offers from boutique private equity groups that wanted to invest in our company, explored an Employee Stock Ownership Program and, in 2003, began transferring our stock to key managers via a management buy-out.

My past company’s team of three owners invested six years and more than $250,000 for advisers’ fragmented advice and considered several offerings as we wandered down the exit path. What key advice would I give to business owners to avoid my mistakes?

  • Understand and clarify your personal and business goals;
  • Determine how much money you will need after taxes to replace your income;
  • Understand that each option has different values and tax consequences;
  • Hire the best professionals who will save you time and money;
  • Understand the compromises and benefits of each option;
  • Pull all of the information together in one document that will be a blueprint for your exit.

Different Goals

Exit strategies

My team reacted to the marketplace when the roll-ups came courting our company. Our fear was we were going to be isolated and competing with several large major companies with a disadvantage. We did not really think about our goals but got caught up with the momentum of the deal, being part of a new company that would change our industry and the opportunity to go public.

After going through the process, we came to the realization that our company did not fit “culturally” with most members of our group, and we wanted the freedom of independence in the control of our destiny. We went on to consider the offers from the private equity groups but came to realize we wanted to give the same opportunity to our strong management team that the three of us (the owners) had received.

We then focused on our goals, planning, our exit timing, succession and preparing the next generation to fill our empty chairs. This planning in 1995 would have saved us a load of time and money.

What Number Do You Need to Retire?

I see advertisements from financial investment companies that ask, “What is your retirement number?” Our company valuation for “selling” to a consolidator was a number that I never imagined. But frankly, we did not know if the number would be more or less than enough to get us into our latter years. In other words, the exit planning process has to look at your entire business, personal and financial wealth. It also must consider the tax and estate issues to determine what after-tax “number” will be needed to replace your income and the “magic number” you will have to receive from the sale of your stock to retire.

Each Option Has a Different Value and Tax Consequence

I went through an expensive process in my exit education firsthand regarding the different financial values of each exit option, compromises and tax consequences. This explanation is far beyond the scope of this article but a valuation would determine your company value based on the path chosen to sell the stock. The ranges of values are ranked from highest to lowest:

  • Synergy value—sale of the company to an outside/external buyer.
  • Investment or financial control value—recapitalization to a private equity group.
  • Investment value (structured)—management buyout.
  • Fair market value—ESOP.
  • Fair market value—gifting.

The bottom line is that each value has a different tax treatment and that it is now how much you get, but how much you keep. Coincidently, great tax planning can reap (net) much more than a higher valuation.

Good or Great Advisers

Our company is located in a small city. Our advisers were the best in our area but lacked a deep understanding in the specialized area of exiting a business. My team explored each exit path and received fragmented information from our well-meaning professional advisers with no overall holistic directions that connected all the isolated information together. The inefficiencies cost our team and company additional time, disappointment and money.

Several years later, after my specialized training in exit planning, after I had sold the company that I then realized the team had overspent millions in taxes. Ouch.

Compromises and Benefits

Each exit path has compromises in financial and strategic control.

  • Sale: Lose job (probably) and control.
  • Recapitalization: Usually keep job but lose control.
  • ESOP: Keep job and control.
  • Management buy-out: Lose job and control over time.

Understand this is a broad view and there are many exceptions but you get the message. In our exit we learned more and more as we dug deeper in to our deals. An exit plan would have put the power of information into our hands, up front.

Exit Blueprint

We did not have exit planners when I left my business. I got into this business after many requests for advice from my business owner friends. I did not become an exit planner until I went back to school for specialized training and certification.

So, as an exit planner, I am trained as a process consultant to move an owner’s goal into a matching path that meets the owner’s financial target; to replace the owner; and to protect his or her wealth with a comprehensive holistic result. I juggle the owner’s goal and scattered information to arrive with one document that fits the puzzle together and pilots the owner down a business exit path for a desired outcome.

In a separate execution phase, I also can quarterback and coordinate different disciplines and professional advisers, including attorneys, tax attorneys/accountants, accountants, estate planners, insurance advisers, financial planners, business consultants, and others in the production and execution of the exit plan.


 Exit planning is the orchestrating of each of these disciplines coordinated in one comprehensive report. That report defines all the options to determine the best fit for your goals and navigates a path out of the business. This combined information will give you the best overall result once the exit is complete—advice we as owners did not receive.