The best time to develop an exit strategy is when your publishing company is in the planning stage, even before you write your business plan. An exit strategy is not a plan for failure; it’s a plan for success. Don’t make the mistake of thinking that planning your “exit” from your publishing business will be The End. For most small publishers, it can and should be the start of a new and profitable chapter in your company’s story.
Know Where You’re Going
Have you ever seen runners line up for a race not knowing where the finish line is? This would never happen, right? Whether you’re starting a new business or expanding a current one, the implication is the same. Before you begin the race, you need to know where you expect to finish.
Your finish line should be described primarily in terms of the reasons you started publishing.Some of the more common reasons include:
- To build a publishing company for yourself instead of for someone else
- To pursue a passion
- To be your own boss and the master of your own time
- To earn money doing what you really like to do
- To capitalize on a publishing idea
- To replace income from the loss of a job
- To create net worth (long-term capital appreciation)
It’s also useful to describe the finish line in terms of future expansion. What new products or services might you add? Can new markets be reached over time? Will the publishing company grow and require more employees? Might it open more offices?
Most entrepreneurs–intent on creating an immediate source of income or just as a result of being caught up in the excitement of launching or expanding their businesses–have a habit of overlooking the finish line and therefore have a marked tendency to run into liquidity problems. Professional investors (i.e., venture capitalists) will require a well-thought-out exit/liquidity strategy as part of the business plan for any venture they plan to put money in, and it’s critical even if you don’t foresee ever asking anyone else to invest so much as a dime.
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There are no right or wrong exit strategies, only different ones. Your strategy should fit your goals.
- Where am I headed?
- When do I want to get there?
- What will my publishing company look like when I arrive at this destination?
The logical place to start is with your long-term objectives, and the one that’s cited most often is retirement. (See parallel article “Retirement Plans for the Self-Employed” by Tad Crawford and Kay Murray on page XX.) You may have other reasons that you expect will cause you to exit your own business eventually. Some entrepreneurs like to develop one business and then leave it to start another.
Whatever your reasons are, you can consider several forms of exit, including:
- Selling all or a portion of the business:
It may be possible to sell your publishing company outright to an independent buyer (such as an aspiring or established publisher). If this is the case, you will want to maximize its net income and avoid having assets tied up in it that you would later want to keep in your personal possession.
- Passing the business to a family member:
This can be a good way to transfer value to your heirs while minimizing estate taxes. Proper structuring is important, as is determining who will run the business.
- Selling to an Employee Stock Ownership Plan (ESOP):
A plan of this sort can be a valuable vehicle when the new owner group is comprised of key employees in the business. There are certain tax advantages to ESOPs, and an ESOP can also add to the value of the enterprise by giving employees a sense of ownership.
- Taking the company public:
For sizable publishing companies interested in gaining liquidity quickly while having the option to share in future stock appreciation, this might be possible. The complexities of this form of exit are substantial, as are its demands on management’s time leading up to and continuing on after the “event.” This option is not for the faint of heart!
In some cases, the best option to gain liquidity may be to stop doing business, sell off the business assets, pay off creditors, and keep the proceeds (after taxes, of course). While this is, in some respects, the simplest option, it often yields the least return to the owner because little or no value attaches to the “going concern” or goodwill of the business. Liquidation is often the method used when the business va8Nbis closely tied to real estate or other productive assets. It’s also common for sole proprietor publishing companies where income production is dependent solely on the owner practicing publishing skills.
Each of the options mentioned above involves a variety of considerations. For instance:
- If you plan to sell the business, what kind of market can you expect for your type of publishing?
Considering the current buying market, what can you do to achieve optimal sales value for your publishing company?
- If you plan to pass the business onto a family member, who will that person be?
How will you train them to run the business? Will the person you have in mind as your successor be interested in taking over when you’re ready to get out? When will you need to begin the transition?
Many of these questions are difficult to answer, but common sense is helpful in tackling all of them. Ultimately your successful exit will depend on how well you think them through.
Thinking about your exit strategy will help you form a clear picture of your publishing company. Three of the major decisions you will be better prepared to make will be:
- Selecting the source, type, and amount of capital you’ll need
(owner, friends/family, debt, equity)
- Deciding on the current form, organization, or legal structure that will best suit your needs
(sole proprietor, partnership, corporation, llc)
- Considering tax issues that will have an impact on your
(capital gains, corporate/personal tax balance, reasonable compensation limits, retirement plans, etc.).
If you have a new business and the choices are not clear-cut, your attorney, tax advisor, or financial planner can help you make the best decisions. You may also find it advantageous to seek the advice of an experienced publisher within PMA.
If you’re currently operating a publishing company with plans to expand or change the company’s focus, the decisions to be made will also be dependent on the considerations outlined above.
Plan & Revise Your Exit Strategy
Whether you’re setting up a new publishing company or already run a successful one, plan and/or periodically revise your exit strategy to meet your future goals and be sure to incorporate that strategy into your publishing company’s business plan. It will always lead to better decisions and greater profitability.
Linda Pinson is the owner of Out of Your Mind…and Into the Marketplace™ (a publisher of educational “how-to” books and software for new and established businesses), as well as the author of eight books, including “Anatomy of a Business Plan” (Ben Franklin Award Winner). She is also the developer of “Automate Your Business Plan 11.0” for Windows 98, NT, 2000, ME, and XP. For more info, call 714/544-0248 or visit www.business-plan.com.