I haven’t decided what I ultimately want to do with my business. I’m not sure when I want to step away, how much money I’ll need upon leaving to live comfortably, or even whom to sell the business to. So - how can I plan for this?”
If you’ve said or thought something similar to this, you are not alone. Many business owners are either overwhelmed by the thought of exiting or are so busy fighting daily fires in their businesses that they assume they cannot plan for their eventual departure. If you aren’t sure about what you want to achieve from an exit or when you want to leave, why is it so important to decide to act today?
First, we need to recognize that when owners have a passive attitude toward the irrefutable fact that they will—one way or another—leave their businesses someday, they are settling for less than the most profitable exit for themselves and their families.
Second, we need to understand that preparing and transferring a company for top dollar takes time - on average, 5 to 10 years. This doesn’t happen overnight! Most of those years will be spent preparing the business for a profitable transfer or, if the owner decides to sell to key employees or children (two groups who rarely have any money), giving them time to earn and accumulate enough cash to buy out the owner’s interest. The more time that owners have to design and implement income tax–saving strategies, build corporate value, strengthen executive and management teams, and begin a gradual transfer of ownership (while retaining control) to key employees or children, the more likely they are to reach their goals.
Third, assuming the owner(s) decide to sell to a third party entity, we must remember that the market does not operate on a set schedule and the current valuation cycle may not create an ideal offer at exactly the same time when they are ready to sell.
If the prospect of leaving your company with little to show for all of the time, effort, and passion you have put in is unacceptable to you, let’s look at your three potential options.
#1 - Wait for a Buyer
Owners who wait for a third-party offer for their businesses believe that one day, a buyer will contact them, negotiate a fair price, and that will be that. This is certainly a course of action, but one that flies in the face of reality. There is a pent-up supply of businesses owned by baby boomers who, given strong interest from buyers, are clamoring to sell their companies. The simple law of supply and demand implies which kind of market sellers will face. In a buyer’s market, only the best-prepared businesses sell for top dollar. The owners of those well-prepared businesses will have made the decision to prepare their companies years ahead of the actual sale.
#2 - Liquidate
Liquidation is a common Exit Path for owners of companies whose cash flow is declining and has a low probability of improving, absent the design and execution of an alternative Exit Plan. If this description fits your company, we recommend that you meet with your tax and other advisors to do the planning necessary to create the most tax-efficient liquidation possible.
#3 Decide to exit and plan accordingly
Do you know your primary planning objectives for leaving the business, such as:
Monthly after-tax income needed to achieve family financial goals?
To whom you want to leave the business?
Do you know how much your business is realistically worth?
Do you know how to increase the value of your ownership interest through enhancing the most valuable asset of the company – your employees?
Do you know the best way to sell your business
to a third party, with the goal of increasing your cash, decreasing your tax liability and reducing your risk?
Do you know how to transfer your business to family members, co-owners or employees,
while paying lower taxes and achieving your financial goals?
Have you implemented all necessary steps to ensure that the business continues if you don’t?
Have you provided for your family’s security and continuity if you die or become incapacitated?
Whether you plan to exit your business in 12 months, or 12 years, there is no better time than now to
begin planning and positioning your business for its eventual transition. You have worked much too
hard to leave this important event to chance – accelerate through the finish line and exit on YOUR terms!
Randy Ward, CFP® and Tim Watson, CFP®, AIF® head up the Exit Planning team at Strategic Financial Partners here in Colorado Springs and work through their 7-step exit planning process with business owners to game plan for an eventual exit. By acting as the quarterback of the Exit Plan, it allows them to know the need for subject-matter-experts and facilitate that part of the plan when needed, such as utilizing valuation experts, attorneys, ESOP specialists, and M&A consultants to make sure your goals are achieved with the highest probability of success.
Randy Ward, CFP® and Tim Watson, CFP®, AIF® are Registered Representatives and Investment Advisory Representatives, Securian Financial Services, Inc., Securities Dealer, Member FINRA/SIPC,
A Registered Investment Advisor. Strategic Financial Partners is independently owned and operated. 1840088 DOFU 07062017
START A CONVERSATION ABOUT YOUR BUSINESS PLANS TODAY