Exit Strategy

How to Structure the Exit Strategy Transaction

Exit Planning

To position your business exit for success, you must understand the implications and importance of alternative transaction structures that can help maximize transaction value. There are many ways to transfer ownership; the most common are sales or transfers of ownership within the family or employee group and sales to a third party. Other options include minority sales and recapitalizations, variations that can allow for retention of partial ownership or management control, as well as IPOs (initial public offerings) and MBOs (management buy-outs).

Selling or passing control within your family

Many owners want to see family members or other heirs enjoy the fruits of their labor. But, non-family managers and employees can be suspicious of plans to transfer management control to a family member, and often family members who are not actively involved in the business will voice objections as well. Key employees and family members alike may have concerns about who controls the business. The earlier and more openly you consider these issues, the greater the likelihood of a satisfactory resolution.

Selling to a partner or co-owner

When partners or co-owners buy or start a business, ownership agreements usually include restrictions regarding the circumstances of transfer such as only by gift or at death; the potential transferees such as only the entity itself, family members or other existing owners of the business; the transfer price which is usually of formula approach or independent expert valuation. These restrictions are often coupled with a right of first refusal in the hands of the co-owners or the company.

Selling to employees, management buy-out (MBOs)

Sometimes the logical successor is an existing employee or group of employees. Where certain employees are key to the business or closely involved in day-to-day operations, you must take steps to ensure that these people want to remain in the business after you’ve gone. If they leave, the value could be significantly affected.

Sale to a third party

The simplest way to transfer ownership is through a sale to an outside party. Sales to larger companies are common as are sales to private equity buyers. This option creates an opportunity to diversity a concentration of wealth in the business. However, the outside sale of assets or stock can have complications and unintended consequences. In the context of a family business, the family may lose its identity or be unable to find a career path for family members associated with the business. A sale to outsiders may also change relationships with key employees, vendors and customers.

Initial public offerings (IPOs)

The expression ‘going public’ describes the process of offering securities, common or preferred stock or bonds, of a private company to the general public. This is often considered when the funding required to meet business growth has exceeded its debt capacity. Under the right circumstances, going public can be very attractive, but the costs are significant, and there is often a misconception about the amount of control that can be retained. The decision to list requires in-depth analysis, and its advantages and disadvantages must be weighed carefully.

Note: this article was originally published at http://www.poewolfpartners.com. Follow Renita on Twitter: @RenitaWolf.

Crowdfunding Platforms

16 Popular Crowdfunding Platforms

There are a wide array of crowdfunding platforms, each with its own unique spin on raising funds. Some platforms support charitable or creative campaigns, others reward-based campaigns, while still others support equity-based campaigns. Some are for accredited investors only while some are open to all types of investors. Some are designed to help raise funds for product development while others are looking for donations to help an individual or family deal with personal needs. While some are designed to help charities raise money. The following list should help you make some sense out of which platforms are best suited for your crowdfunding needs:

  1. Kickstarter is the largest platform with over 13 million visitors a month. It is a good platform to host product and event campaigns, but not social causes.
  2. Indiegogo has upwards of 9 million visitors a month and is similar to Kickstarter. Here you can raise funds for any legal project. It is a good platform for not only raising funds from domestic sources, but international ones as well.
  3. RocketHub is the next most popular platform and is known for its support system “Success School.” It offers many funding models, including ones where you get to keep pledges even is you never meet your funding goals at the end of the campaign. Since they partner with A&E, business owners have the chance of being featured on TV and on the A&E website.
  4. Crowdrise is similar to RocketHub in that it has flexible funding models where you can keep pledges even if your goals are not met. It is one of the biggest platforms to raise money for social causes.
  5. Fundable is one of the few platforms that offers both equity-based and reward-based crowdfunding. What makes it unique is that it does not work on a commission based on the amount of money raised. This quality makes it attractive for large projects.
  6. AngelList is a platform for start-ups to meet accredited investors and is geared for equity-based campaigns only.
  7. SeedInvest is a platform like AngelList that enables accredited investors to invest in start-ups.
  8. CircleUp is an equity only platform that connects accredited investors, innovative consumers, and retail companies. Companies must have existing revenue in excess of $500K to be listed. Funding can be through convertible debt or equity.
  9. WeFunder is another equity-based crowdfunding platform for accredited investors only, but allows for pledges as small as $100.
  10. GoFundMe is a popular platform for personal fundraising causes (e.g., covering medical expenses), but also for a select group of charities. They also support reward-based all-or-nothing campaigns similar to Kickstarter.
  11. YouCaring is another platform for charitable and personal causes with specific categories for medical, funeral, tuition, adoption, faith-based, pet expenses, and community causes.
  12. GiveForward is a donation-based platform with specific categories for medical bills, veterinarian bills, and funeral expenses.
  13. Patreon is a platform for fans to support their favorite creative projects such as music or video projects on a more ongoing basis.
  14. AlumniFinder is a relatively new platform to fund creative and innovative projects within a university community.
  15. AppStori is a crowdfunding platform to connect consumers with app developers. Consumers can make contributions to developers while developers find beta testers and build an audience.
  16. CauseVox is a platform tool for developers to develop their own website for peer to peer fundraising campaigns.

Which crowdfunding platform is right for your next fundraising campaign?

Note: this post originally appeared at: http://www.stevebizblog.com/

Lean Business Planning

Lean Business Planning vs. Traditional Approach

The Center for Business Modeling is based on one simple premise – to help entrepreneurs launch their ventures in the fastest and most successful manner possible. And in the vast majority of cases, this means launching a venture in the “lean business mode” from both a planning and operations standpoint.

Many new entrepreneurs are still taught – by well-meaning professors or industry groups – to follow the traditional route to business planning and launch. So what are the problems with this type of approach to business planning that cause us to recommend the lean business strategy? Here are five of the major issues:

  1. Almost every business plan is inaccurate as written. A recent Harvard Business Review article stated that 90 percent of successful businesses had to pivot from their original plan.
  2. The traditional business plan takes too much time to complete – time better spent elsewhere. When you are in a startup situation, the only resource more valuable than money is your time.
  3. Much of the information is unknowable at the time the plan is written. Almost all entrepreneurs are surprised when the reality differs from the expectation. Sometimes this is a pleasant surprise and sometimes a not-so-pleasant surprise, but it will definitely impact your venture.
  4. Plans that project financials five years out are somewhere between speculation and fiction. It is amusing to watch entrepreneurs plot how much they are going to spend on office supplies 60 months from now, but in reality, almost no one gets it right.
  5. Too many small business plans are based on big company data. Much of the entrepreneurial data taught at the college level is about rocket ship companies like Facebook or Uber, which do not apply to the SMB marketplace.

All of these challenges can be overcome by adopting the lean business planning model. Here are a few of the benefits received when you adopt the lean business game plan:

  • Much faster than writing a traditional plan. The time investment paradigm in the lean model shifts from planning to execution.
  • More intuitive. Tools like the Business Model Canvas, Lean Canvas, and the Center for Business Modeling Business Planning Framework, are much easier to understand and complete, and much easier to evolve over time.
  • Quicker for investors and partners to digest. Investors tend to have short attention spans in the beginning phases and very long attention spans as they get closer to funding a particular venture. You need to get your key points across in the shortest time possible or the potential investor will move to the next deal. Using any of the lean planning tools mentioned above, the essential elements of your strategy are contained on one page.
  • Helps you get to cash much faster. The game of business gets a lot more interesting once you get on the playing field. The lean model is designed to help you launch quickly, expose your products and/or services to prospects, learn from these initial tests, and re-launch based on the knowledge gained in the early test period.

I encourage budding entrepreneurs to adopt the mantra of Test, Fail, Succeed, Scale (in that order please). The lean business planning approach is just what you need to accomplish this. For a great book on the subject read Business Model Generation.