Most business owners dream of either selling their company or passing it onto the next gen- eration. Whatever the plan, the goal is a suc- cessful transition for all involved.
Exit planning is the process of an owner obtaining his or
her definition of business independence, and this will mean
something different to each owner. As with any long-term
strategic business planning, the owner will need to consider
and establish business and personal goals as part of the planning process.
The ultimate goal of exit planning is for a business to survive without its owner and for the owner to live without the
business. For the owner, the ability to live without the business is both financial and emotional. For the business, it is
operational and financial since the company cannot rely on
the owner’s ability to run the company or on personal guarantees for debt and loans.
When setting goals, keep in mind there are mainly five
ways an owner can leave a business:
1. Sell to a third party;
2. Sell to a family member or co-owner;
3. Sell to key employee(s)/employees;
4. Die owning the business; or
5. Liquidate the company.
Fortunately, each of these eventualities can be planned for
well in advance.
Catching the vision
Business owners should take time to consider the answers
to these four universal questions as they begin planning for
their personal life and business goals:
• How much longer do I want to work in the business?
• Who would I like to sell/transfer my business to?
• What is the annual after tax income I will need?
• What will I do when I no longer own the business?
Owners should spend time thinking about who they
are and what they want to do when they are no longer
business owners. It is also important to ask how much of
the owner’s identity is through the business? What per-
sonal relationships might change or go away with leaving
the business? What post ownership activities will provide
meaning and purpose?
The owner has to be the CEO – the Chief Exit Officer –
creating the vision of where he or she wants to go with the
business and must be able to clearly describe that vision to
everyone involved in the process.
A compelling vision can motivate the owner to act upon
it, but one that is not will never move beyond the idea stage.
Once the vision has been established, the owner will need
a team of advisors to help achieve it. No single person has the
training and ability to provide all of the technical and professional services needed to create a successful exit plan. The
owner will continually have to ask the advisors: “How do your
planning strategies achieve my vision?”
An independent valuation is critical to determining the
value of the company if it is to be sold. Going through this
process also allows the owner to estimate the net value from
the sale of the business after taxes. With that information,
the owner can determine whether current savings and the
annual income from savings and the sale of the business will
cover the costs of their anticipated lifestyle.
If there is a gap between the income and budget, the
owner has several choices:
• Stay and work forever in the business – but have a plan for
when “forever” arrives.
• Sell the business and adjust the post-ownership lifestyle.
• Save more of the current profits and build assets outside
of the business.
• Build on the value of the business to realize more money
upon its sale.
Whichever course is selected, be prepared to steer the business through four important cornerstones. One of the four
KEYS TO SUCCESSFULLY
LEAVING YOUR BUSINESS
BY BOB O’HARA