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Now is the Time to Organize Your Documents and Consider Your Exit Strategy

Mark G. Metzler, CPA, CGMA, CEPA
Mark G. Metzler, CPA, CGMA, CEPA Director, Audit & Accounting

Private company transfers

As we enter the proverbial “dog days of summer” and look to spend time recharging and recovering from the effects of a pandemic that has been physically, emotionally and financially challenging, it’s an opportune time to consider your exit strategy. The owner of a private company knows that there truly is no day off from work even though you may be physically at the lake, the beach, or on the golf course, instead of the office. You are wired differently and you have made the difficult choices (mostly right but a number of wrong) that enabled you to build the company that represents a significant portion of your personal wealth.

Whether you are relaxing watching a beautiful sunrise or sunset, resting in your comfortable chair, or sipping your favorite cocktail, planning for your succession and exit may always be in the back of your mind.

Crossing off the items below from your to-do list will allow for a smoother and more successful exit when the time arises.

  • Have you reviewed and updated your shareholders’ agreement? At a minimum, you should be revisiting the agreement every three to five years. It is not meant to be an agreement that is prepared once, locked in a drawer or filing cabinet, and forgotten. Rather, it should be a working business document that reflects the changes in your company and the environment, and should be easily understood without unnecessary legalese.
  • Have you completed a nexus study to evaluate in which states you are conducting business? State and local tax issues have been gaining more and more attention and states are aggressively targeting companies that are conducting business within their boundaries but are not registered. It’s better to identify your potential exposure upfront, before a potential transaction or exit presents itself. We have seen too many transactions fall apart (or the purchase price significantly impacted) as a result of state nexus issues.
  • Do you have a reasonable expectation of the value of your company? Once again, it is not unusual for a proposed acquirer to suggest an inflated value for a company, only to substantially reduce it later or withdraw it all together, wasting your time, energy, and money. Obtaining a Range of Value report will provide you with a fair assessment of the value of your company. The Range of Value report is less comprehensive (and less costly) than a full valuation report, but it will often provide the information most critical to the private company owner in evaluating the value of his or her business.
  • Have you obtained a Quality of Earnings (Q of E) Report? In today’s environment, a Q of E Report is commonplace in merger and acquisition transactions as it provides a thorough examination of the company’s operations, including revenue streams, contract terms, customer concentrations, significant trends, accounting policies, etc., that may not be readily apparent in the company’s internal or external financial statements. For the business owner looking at a potential exit (whether it be in one year or 5 to 10 years), the Q of E report may highlight items that need to be addressed to maximize the potential transaction price.
  • Have you evaluated your management team and the compensation structure in place at your company? It’s important to not only have the right people in the right seats, but also to ensure that your team is appropriately compensated. In this market, talented professionals are in high demand and the loss of key management players may significantly impact your company and its value. A compensation study may provide you the information to ensure that your management team is fairly rewarded for their efforts and reduce the risk that they are poached by a competitor.

There is no better time than the present to address these items. Take a few minutes while you are spending time with your family and friends this summer, and make a call or send an e-mail to get the process started. You will be happy that you did.

Mark G. Metzler

Mark G. Metzler is a Director with Kreischer Miller and a specialist for the Center for Private Company Excellence. Contact him at Email.


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Mark G. Metzler, CPA, CGMA, CEPA

Mark G. Metzler, CPA, CGMA, CEPA

Director, Audit & Accounting

Employee Benefit Plans Specialist, Owner Operated Private Companies Specialist, Private Equity-Backed Companies Specialist

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