Why Exit Planning is Critical
Do you know your primary planning objectives in leaving the business, such as departure date, income needed to achieve financial security and to whom you want to leave the business?
Do you know how much your business is worth?
Do you know how to increase the value of your ownership interest through enhancing the most valuable asset of the business, the employees?
Do you know the best way to sell your business to a third party while maximizing your cash, minimizing your tax liability and reducing your risk?
Do you know how to transfer your business to family members, co-owners or employees while paying the least amount of taxes and enjoying financial security?
Have you implemented necessary steps to insure that the business continues if you don't?
Have you provided for your family's security and continuity if you die or become incapacitated?
A truly successful transfer of business ownership starts with a plan, followed by appropriate preparation. How much planning and with what lead-time depends on so many factors that is impossible to prescribe for all owner situations and businesses. What has been said bears repeating: good planning and preparation is fundamental, and further, that while it's never too early to begin, it can be too late to make a difference.
The Kiplinger Business Resource Center warned business owners in their newsletter
to "Expect a glut of firms to go up for sale as thousands of baby boomers retire," and that "Owners without an exit strategy will likely sell at a discount." They emphasized their prediction by stating that "Gigantic amounts of wealth are not going to be realized because of a lack of planning."
The Wall Street Journal had similar warnings for business owners when it reported that "A lot of entrepreneurs think they have the perfect retirement plan: They'll sell the business for a bundle and live off the proceeds. But many of them will be in for an unpleasant surprise when they're ready to bail. They haven't done the work they need to do to get the company ready for a buyer." The WSJ went on further to advise, "Finally, when entrepreneurs are ready to sell, they should get professional help to figure out how much the business is worth and how to handle the sale. Owners often think the company is worth more than it will really fetch in the market, leaving them ill-prepared to sell."
Experts predict that 80% of closely-held businesses will change hands in the next five years, and the majority of those sellers will leave money on the closing table because they did not plan ahead. Entrepreneurs tend to be too busy working IN their business to work ON the business. They also don't know when to start planning for exit and who to call for help. The time to start is NOW because you never know when you will leave the business. Tomorrow the ideal buyer could come knocking on your door and you may not be ready to get maximum value for all your years of hard work.
The day you enter business ownership is the day you should start planning to leave your business. Those who follow this rule maximize on their investment when they transfer ownership.