Is Planning to Sell My Company the Best Exit Strategy? 

Suzanna DeBaca -- Expert Business Source, 2/28/2007 7:15:00 AM

How do you cash out of your company when you want to retire, especially if you are in a partnership or a business with more than one owner?  A Partnership Agreement funded with buy-out insurance is an easy, practical, and far-sighted way to secure your financial future.

One of the biggest issues facing the owners of private companies in construction is exit strategies.  For small companies, the most obvious exit strategy might be simply looking to the bigger firms to buy them, but is hoping to sell your company to a bigger player a sound strategy that will guarantee you and your family sufficient income for the future?

Selling can be great if you are in a good market cycle, in an attractive region, and have a strong balance sheet.   But what if you want to retire when the construction market is in a down cycle and your valuation doesn’t reflect what you know is the true value of your business?
 
What if one of your partners dies or is disabled suddenly and there is no buyer for your business at market rates?   Would your partner’s shares go to his estate?  Do you have the cash on hand to buy out your partner’s spouse or heirs?  Could you easily borrow to buy out your partner’s share?

Or worse, what if something happens to you?  Would your surviving spouse or heirs have to sell at firesale prices to secure their own financial future?

Planning ahead can prevent these nightmare scenarios from happening and allow you to sleep at night knowing that you can exit the business on your own terms.

The easy answer to securing a guaranteed exit strategy is to create a Partnership Agreement and to create a buy-out funding strategy with your co-owners.  A Partnership Agreement specifies what will happen to your shares in the even that one of you dies, is disabled, or wants to exit the company.   Insurance can be used to fund buy-outs for each of these possible scenarios.  

There are several widely used types of buy-outs, including Entity Purchase Agreements, Cross-Sale Agreements, and Trusteed Arrangements.  We will discuss each of these options, their advantages and disadvantages, over the next several weeks.

Suzanna de Baca is the President of Private Capital Solutions Group.  She is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS), 7 Hanover Square, New York, NY 10004, (888) 600-4667.  Securities products/services and advisory services are offered through PAS, a registered broker/dealer and investment advisor. Private Capital Solutions Group is not an affiliate or subsidiary of PAS.

PAS is a member NASD, SIPC.

Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal or investment advice. Although the information has been gathered from sources believed reliable, please note that individual situations can vary, therefore the information should be relied upon when coordinated with individual professional advice.