You’ve heard it said: “The only sure things in life are death and taxes.”
A truthful addendum to this for the private business owner that is equally sure is that at some point you will beyour business.
No matter how much you love your business, there will come a time where the game will change.
Some willbased on retirement or medical issues. Some will notice changes in the market or industry that will begin to take their toll. Some will pass the business along to a family member or a loved one. No matter the specific circumstance that will motivate the exit, the business owner must be ready when the time comes.
In the same manner that you keep your receipts when preparing to file for taxes, you must also prepare in advance foryour business.
In order to help you prepare, we’ve listed five fundamental steps to preparing your exit strategy:
(1) Define Post-Business Objective
The first step of exit planning is a definition of your objective. What are your plans once your business has sold? This objective will drive the exit planning process.
The owner will need to decide how much profit he or she needs to make out of the sale of the business in order to achieve an ideal outcome.
(2) Financial Planning
Once you have determined your primary objective, you are ready to begin to plan the financials for the future sale. During this portion, the owner and professional advisors will begin to look at the cash flow and profitability of the business.
The current value of the business will be assessed including all assets. Once the financials of the business have been assessed, there will be a thorough review conducted of the business, and of its value drivers. The question of what portion of the business “leverage value and reduce risk” are addressed.
As this is assessed you will be able to make a better effort to make the most of your time as you are preparing to meet your exit planning objectives.
(3) Management Transition
Whether or not you are planning to sell to a third party or to an insider will determine how you manage the transition in your exit planning process.
Is it transferred to a third party or to an insider? This will determine how to plan for their exit. Often times if an owner is planning to sell to an insider who may not come to the sale with substantial personal capital, the owner will need to plan for this in order to still receive maximum value during the transition.
(4) Contingency Plan
With every good exit plan, there needs to be a well thought out contingency plan. Risks must be assessed. Some risks include: potential litigation, large portions of revenue in the hands of a few clients, liabilities, employee risks and others.
(5) Personal Estate Planning
The final stage of an exit planning process is your personal estate planning. This is certainly not the most exciting portion of the process, but critical to a successful plan is planning where your money and assets will go if something were to happen and you were to pass away earlier than expected. SmartMoney offers helpful solutions personal estate planning.
An exit plan is critical and hiring a professional as an advisor during the process will increase the accuracy of your plan.
© 2011All Rights Reserved