You’ve spent a lifetime building your business. Years of sacrifice, toil, sweat and tears. Eventually, every business owner faces a point in time when they must consider an exit strategy.
With proper planning, there’s every reason to think that it will end up in good hands, or if not, put some change in your pocket as you lock the door for the last time before handing over the keys.
The importance of proper exit planning
Exit planning is particularly important now because the country is on the verge of an unprecedented transfer of wealth. Boomers have been the most prolific creators of privately held companies in the nation’s history and its members are now 58 to 76 years old.
Boomers own 2.34 million small businesses in the U.S., employing more than 25 million people. Many are at a crossroads and need to determine if they will be selling their business or passing it on to a successor.
The challenge is after the baby boomers, the next two generations combined are smaller than the Boom Generation. If you’re a GenXer like me, well, whatever.
So, what does all this mean? There are fewer prospects to successfully transfer and transition a business. We want you milk every last drop of joy out of your post-business life, so we’re here to help.
Exit planning basics
Even if you’re years away from facing this decision, you may want to read through this lesson so that you can give some thought to incorporating an exit strategy into your existing business plan. You just never know what the future holds.
Understanding the market value of your business will require a fair amount of planning since you will need an objective view of your business’s market value. This should include hiring a valuation expert who is familiar with your business and can identify for you the specific factors that will make your business more or less valuable to prospective buyers.
In the meantime, start thinking about:
- The length of time you plan on being part of the business.
- The financial status of you and your business.
- Tax implications of various exit scenarios.
- Entities that may need to be compensated, such as investors and creditors.
What are your options?
Take a look at our Exit Strategy Course where we go into detail on the six most common exit plans.
- Liquidation (throw in the towel and call it quits)
- Bankruptcy (last resort)
- Selling the Business to Someone You Know (friends, customers, relatives)
- Selling on the Open Market (prospective owner who doesn’t want to start from scratch
- Selling to Another Business (selling to a competitor)
- Selling to Employees (employee stock ownership plan)
Which one is best for you?
Ask yourself these questions:
- Do I want to remain involved in the business in some capacity after I retire or sell out? If the answer is yes, passing your business to a family member or negotiating an employee buyout are the options most likely to allow you to remain an adviser in some capacity.
- What are my financial goals? A merger; selling your company to another business, partner or investor; or an IPO are the options likely to provide the highest return for your business.
- What do I want to happen to my employees and/or clients after I leave? Passing the business to a family member, negotiating an employee buyout or selling to a partner or investor are the options likely to have the least impact on employees.
- How much debt does my business have? If the company is deep in debt, a liquidation, ABC (assignment for the benefit of creditors, a less-formal liquidation) or bankruptcy may make the most sense for your circumstances.
When and where to find a professional
As with any sound exit plan, it’s best to know where the door is.
The sooner you begin working your way toward the door, the more likely you are to save time and money in the process.
Financial experts recommend that small-business owners hire an exit-planning professional and set aside time to work with them. Trust is the key element to look for when selecting a professional to help you prepare a plan. Ask potential advisers to share some of their success stories, discuss some of their failures and talk about whether you should expect a return on the fees you will pay.
Thinking about retirement can be a pretty emotional exercise, especially if you hadn’t given it much thought over the years. The retirement years have a way of sneaking up on you. In an ideal world, an exit strategy is part of a business plan. Yes, it seems a bit contrary and even defeatist to consider how you’re going to leave the business when you’re still working on opening it. But time is not on your side. The years will slip by, and before you know it, it’s time to move on and enjoy your golden years and leave the business world behind.
There’s a lot to think about, and we’ve done our best to take some of the exit strategy burden off of your plate.