Exit planning is the preparation for the exit of an

entrepreneur Entrepreneurship is the creation or extraction of economic value. With this definition, entrepreneurship is viewed as change, generally entailing risk beyond what is normally encountered in starting a business, which may include other values t ...

from his company to maximize the

enterprise value Enterprise value (EV), total enterprise value (TEV), or firm value (FV) is an economic measure reflecting the market value of a business (i.e. as distinct from market price). It is a sum of claims by all claimants: creditors (secured and unsecured) ...

of the company in a

mergers and acquisitions Mergers and acquisitions (M&A) are business transactions in which the ownership of companies, other business organizations, or their operating units are transferred to or consolidated with another company or business organization. As an aspect ...

transaction and thus his

shareholder value Shareholder value is a business term, sometimes phrased as shareholder value maximization. It became prominent during the 1980s and 1990s along with the management principle value-based management or "managing for value". Definition The term "shar ...

, although other non-financial objectives may be pursued including the transition of the company to the next generation, sale to employees or management, or other altruistic, non-financial objectives. Exit planning differs from

succession planning Succession planning is a process and strategy for replacement planning or passing on leadership roles. It is used to identify and develop new, potential leaders who can move into leadership roles when they become vacant. Succession planning in d ...

in that the later is a sub-component of exit planning, and refers to the hiring, training and retention of a successor President/CEO of the company in a planned manner. Succession Planning is but one of the many considerations when conducting exit planning. Company owners commonly do not see their company from the standpoint of a potential buyer, and thus, ignore the strategic management of the company. To achieve their desired outcomes, business owners often focus their attention on exit planning from the beginning of the investment, in order to prepare adequately for trade and financial sales, make effective use of the buy back option, market their businesses more widely for sale, use intermediaries and get the support of management Significant value is lost due to an absence of or inadequate exit planning. Roughly 30% of businesses will be transferred to family member in some manner, 18% intend to sell to its employees, and many will simply be closed. Up to one-third of businesses that are closed were successful at their termination The three sources of enterprise value in a company are firstly the value of its tangible assets, and secondly the value of its

intellectual capital Intellectual capital is the result of mental processes that form a set of intangible objects that can be used in economic activity and bring income to its owner ( organization), covering the competencies of its people ( human capital), the value rel ...

(intangible assets), which consist of human capital,

relational capital Relational capital is one of the three primary components of intellectual capital, and is the value inherent in a company's relationships with its customers, vendors, and other important constituencies. It also includes knowledge, capabilities, pr ...

, and structural capital (including is subcomponents organizational capital, innovation capital and process capital. Most of a

middle-market company Authorities provide differing definitions of the middle-market or mid-market companies. While some authorities look to revenue generated by companies to define the middle market, other sources regard either asset size or number of employees as a bet ...

's and lower middle market company's value is derived from its relational capital, specifically, its customer relationships.

SMEs Superconducting magnetic energy storage (SMES) systems store energy in the magnetic field created by the flow of direct current in a Superconductivity, superconducting coil which has been Cryogenics, cryogenically cooled to a temperature below ...

, also referred to as middle market companies, create innovation capital (part of structural capital). Most small-to-medium-sized businesses use a

boutique investment bank A boutique investment bank is a investment bank that specializes in at least one aspect of investment banking, generally corporate finance, although some banks strengths are retail in nature, such as Charles Schwab. Of those involved in corpora ...

to market their company in a mergers and acquisitions transaction to potential buyers. Some boutique investment banks also offer exit planning preparation, while certain consulting firms offer one or more of the services needed to conduct exit planning, such as

human resources Human resources (HR) is the set of people who make up the workforce of an organization, business sector, industry, or economy. A narrower concept is human capital, the knowledge and skills which the individuals command. Similar terms include ...

, in connection with succession planning.

Private Equity In the field of finance, the term private equity (PE) refers to investment funds, usually limited partnerships (LP), which buy and restructure financially weak companies that produce goods and provide services. A private-equity fund is both a t ...

Groups are common acquirers of middle market businesses, whether as Platform companies or add-on or tack-on acquisitions. In addition to business aspects, personal considerations need to be taken into consideration, including considerations about estate taxes, capital gains taxes, or other taxes.

References

{{reflist Business planning Capital (economics) Corporate finance Investment banking Mergers and acquisitions