Legal Blog

Managing Risk in Exiting a Privately Owned Business – Getting Out with Value

by Mike Mercurio, Esq. After all those years of toiling to build a business and make it successful, the time has finally arrived for a graceful exit. Of course, graceful is really about maximizing value, making certain the owner reaps the rewards he or she deserves. Exit strategies abound to turn the owner into a savvy seller who leaves no money on the table. Determining the true value of the business is, of course, the obvious place to start. There’s no shortage of consultants and advisors available to help place a proper valuation on the assets. And if the valuation exceeds what seems reasonable, remember that no seller ever turns down a highly inflated offering price. Sometimes, however, the overemphasis on price causes the seller to disregard the overall terms and structure of an exit transaction. Key elements of the transaction should include: assets and liabilities to include or exclude; pre-tax settlement or exclusion opportunities; existing contractual relationships; and possible future relationships between the buyer and seller. Advisors may competently give counsel on these issues, but the seller must also take the time to actually listen. Then there are always the tax considerations. The seller wants to reduce taxes associated with the sale, but minimizing the company’s profits to avoid taxes can also devalue the company for a prospective buyer. It can be a tricky balancing act to accurately represent a company’s true value while trying to circumvent an unwieldy tax burden when exiting. Just as planning was essential in building the business, it’s just as necessary for exiting. A common mistake of business owners is the failure to provide enough time to finalize a properly executed business strategy. By assembling a team, building a strategy, and managing the entire process, the seller drives the exit process rather than letting potential buyers gain control. It’s about the seller knowing what he or she wants, and the knowledge gained in planning prevents bargaining from a position of weakness. Most business owners have the vast majority of their personal wealth tied up in their business. Leaving this business for most individuals is a once-in-a-lifetime event. With careful planning and attention to detail, it can also be a memorable one financially.

About Mike Mercurio

Michael N. MercurioMichael N. Mercurio is a Principal at Offit Kurman and Chair of the firm’s Business Law and Transactions Group. He regularly counsels entrepreneurial individuals and assorted entities on all aspects of business and commerce, including formation and structure, ownership, management and control, financial and capital, expansion and acquisition; sale and transfer; and contraction and dissolution. He has substantial experience representing clients in technology, cyber, healthcare, government contracting arena, assisting them through growth and maturation as well as mergers, acquisitions and internal transitions. Mr. Mercurio can be reached at mmercurio@offitkurman.co. To find out more about Offit Kurman’s Merger & Acquisitions Group, please click here.

About Offit Kurman

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