Leaving a business is probably the last thing a new small-business owner is thinking of. But it shouldn't be, because the reality is that most people won't be running their businesses forever. Owners should plan on getting out while they are alive, so to speak, and to do that effectively, they need to plan an exit strategy.
There are a few basic steps to take before leaving, as noted in John Brown's
The Completely Revised How To Run Your Business So You Can Leave It In Style
. Brown is also the president of
Business Enterprise Institute, which educates business owners on exit strategies.
Being aware of these tactics can ensure that your company outlasts you.
Questions to Consider
Many small business owners are so inundated with their company's day-to-day operations that they haven't really considered retirement. So the first question to ask yourself is when do you want to leave the business?
"My goal was to leave the practice in five years; I had that goal
in 1973," says Brown, who then ended up practicing law for 33 years. Even if you have an idea when you want to leave, it may not be possible without proper preparation and planning.
Small-business owners also need to evaluate their lifestyle, both current and future: Who do you want to transfer the business to, and how much money will you need after leaving? Does your family have financial security if something happens to you unexpectedly?
Brown further recommends owners ask questions that will have a direct impact on when they can leave their businesses: Do you know how much your business is worth today, in cash? Do you know how to sell your business to a third party and pay the least possible taxes?
"One of the most important aspects is the valuation
of the company, as the business is usually the person's biggest asset," explains Brown. If you want a certain amount of money to maintain your lifestyle, you must ensure that the expected selling price is adequate to meet these financial needs.
If you don't know some of these answers to these questions, it's essential to start thinking about them, both for your and your company's financial security.
It is nearly impossible to do go through the exit-planning process on your own, Brown says. You should always utilize a team of advisors including business attorneys, insurance advisors, CPAs, investment bankers, valuations experts and transaction attorneys.
Think carefully before selecting your consultants. Even though someone may be a skilled lawyer, it doesn't necessarily mean he or she can help you come up with a good exit strategy.
Get recommendations from trusted business associates, and ask potential advisors about their experience in the retirement realm.
Patience for the Process
According to Brown, the essential steps of a successful exit process include establishing objectives; determining the value of your business; selling the company to a third party or transferring management to
family members; developing a contingency plan for the business; and planning family wealth-preservation. Each one of these steps will require a significant time investment, but it will be well worth it.
And keep in mind that whoever takes over your company will impact its future.
"It is very important, in my experience, to find a strong management team that stays behind when the owner leaves," says Brown. This can ease the transition, and help ensure that all your planning will be implemented and carried out.
For example, if you wanted to sell your business to a key employee, you should start transferring ownership while you're still there to make sure he or she can run the business. Once that person has acquired ownership of the business, the new owner may need to borrow the balance from the bank and pay you any remaining value -- but the bank will only give the loan if it is confident that the new owner is capable of running the business.
"What owners tend to do
is wait too long and all of a sudden, they want to get out," says Brown. But the planning process doesn't occur overnight, so you must be patient and thorough if you want the business to carry on.
Still, consider the advantages -- doing your homework and consulting your team will make you money. "Any advisor worth their salt can create more value and reduce risk for the owner," Brown points out.