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This is an excerpt of a letter by Stuart L. Adams, Jr. written to clients considering exiting from their business. As is the case with all material at this site, you should not consider this legal advice. This portion of a longer letter is intended only as an example of some of the many serious general issues to consider with such a matter. Expert local legal, financial advice should be obtained in all such matters.
Dear [Clients],
RE: Exiting from your business
There comes a time for every entrepreneur when you will leave the
business. It may be voluntary or mandatory for a variety of reasons.
After the founder comes up with the “great idea” and organizes the
business, others may be better able to run the business. Sickness, disability and death may insert themselves unexpectedly. Retirement will
come eventually. It is better to prepare for all of these possibilities
as the business grows than to have to deal with them suddenly and
without prior planning.
There are five basic options for succession of a business from original
entrepreneur to others. Each option has several sub-options. The basic
five options are:
Often, your major or minor competitors may be the best possible purchasers of your business. They may see your departure as an opportunity to take over your market. Be extremely careful here, however, since even getting wind you might sell may cause them to see this as an opportunity to take away your customers without negotiating to buy your business.
Some large businesses have been accused recently (ex. Microsoft) of negotiating for months to purchase or stock swap with a smaller competitor, only to break off at the last minute after certain “secrets” were learned during negotiations as to how their smaller competitor was doing business and what their next product or service upgrade was to be.
Confidentiality and nondisclosure agreements are essential among competitors and others. If your are foolish enough to expose your trade secrets and strategies without sufficient safeguards, you should not be surprised when the potential partner or purchaser finds a willing buyer for the information among your competitors.
Just as with selling a house, keep your business in good shape to get
the best price. You will not get top dollar unless equipment and
customers are in good repair. Outmoded technology, a dwindling customer
base or run down shop will diminish your chances of exiting with as much
money as you should. Consider installment sales only with adequate
security.
Please be advised that the contents of this letter are not meant to be exhaustive of your strategic options, nor are you ever totally protected in these situations. There are other steps you can take and other ways to go about this. Some of this will obviously depend upon how well you can negotiate. How well you can negotiate certainly starts with what leverage you have or the other party perceives that you have.
If I can be of any further help now or as this progresses, please let me know. I will take no further steps unless you specifically request them. Thank you for allowing me to be of service to you.
Yours very truly,
Stuart L. Adams, Jr.
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