Why bother with an exit strategy? The simple answer: Lack of a cohesive exit strategy, for publishers large or small, is a recipe for financial disaster. Stated more positively, a well-executed plan to build and sell your property can greatly enhance its ultimate value.

The alternative to having an exit plan is simply deciding to sell if and when circumstances dictate. But the passive approach is fraught with perils. It’s far better to have a definitive plan, even a sketchy one, than to allow outside events to control your future financial destiny.

The time to start planning your exit strategy is now. Ideally, you should operate on at least a five-year timetable, and periodically revisit your progress. Flexibility and contingency options should be built in.

Step One

Decide when you want to sell and how much income you will need to maintain your desired lifestyle. Consult with an objective financial adviser to determine your needs and to create a goal that takes into account taxes and inflation. Remember, if your company is a C Corporation, you may be subjected to a form of double taxation on an asset sale.

Step Two

Determine what your business is worth now. Be realistic. Small publishers often have inflated notions of what their magazine or company is worth. It may be worthwhile to invest in an independent appraisal.

Step Three

Look into the future and determine what your property will need to sell for to reach your retirement income goal.

Step Four

Work backward to retroactively create a business plan and financial pro forma that will get you where you need to be. If your plan covers five years, prepare preliminary P&L forecasts for each year. You may find that organic growth alone will not transport you to your desired income destination. You will need to build in expenses, and perhaps debt, to fund start-ups or acquisitions necessary to generate adequate revenue. That’s where the financial pro forma comes in, versus a simple grow-by-X-percentage-each-year approach. Here you will be budgeting increased expenses, and perhaps losses, to fund eventual growth.

Another key: From now until the time you sell, operate your company with an eye toward value. Buyers will look closely at your trailing revenue growth and earnings performance, but instituting cost-cutting measures to artificially boost profits will backfire in the long run. Buyers favor companies with strong, well-compensated management in place, and a cost structure that is in keeping with industry standards. Make sure, too, that you have built and refined your online platform and other ancillaries (See "Online Services Greatly Affect Valuation," Folio:, January, 2007).

A Sample Scenario

Let’s use this admittedly simplified approach to build a hypothetical exit strategy. Your revenues are now $3 million, EBITDA is $400,000 and your company is worth $2.5 million. You would like to sell your company in five years. You and your financial advisors determine that you will need $5 million (before taxes) to achieve your post-sale income goals.

If sales grow at an average of 8 percent a year, your company will show sales of $4.4 million after five years. Using the same multiples, EBITDA will be about $600,000 and the property should be worth about $3.7 million;far short of your goal. What to do?

Here’s where the real value of a business plan/exit strategy comes into play. In this exercise, you need to double the sales and EBITDA of your company over five years;an increase of $1.6 million above your average rate of organic growth. You therefore revise your business plan to include a start-up and a strategic acquisition designed to bring total revenues to $6 million and EBITDA to $800,000 by the end of Year Five.

Unfortunately, too many factors can derail even the best-laid plans. Tragic events such as September 11 will demolish the most finely honed business agendas. So can divorce, litigation, health problems, competition, economic fluctuations, partnership conflicts, and, of course, the death of a principal. Whereas you have no control over some of these occurrences, your well-crafted exit strategy still offers the best protection.

Michael D. Kreiter is director at W.B. Grimes & Co., a Gaithersburg, Maryland-based investment firm for the media industry.