Have you been thinking about sitting on a beach in Cabo, or playing golf at Whistling Straits, or spending more time with family. Maybe all three. You invested substantial financial resources, including time away from your family building your business. Is it time to take that next step? Is it time to EXIT?
Your family-owned business is your life’s work. With some careful planning, you can prepare your business so it will attract buyers when you decide to sell. While you might be emotionally ready to exit, have you done your homework? Are you prepared for this next step? Do you have an exit strategy?
Here are some exit strategy thoughts you need to consider:
- If you don’t have a plan, create one. Make this a priority. It needs to be an executable plan that increases the value of your business and ensures its sustainability. You should consult with your team, CPA, lawyer, insurance agent – all important advisors to help navigate this important piece of your business life cycle.
- What is a business exit strategy? In technical terms it’s an entrepreneur’s strategic plan to sell his or her ownership in a company internally, to investors or another company. Unfortunately, rarely is this plan developed before going into business. Although there are several options to transfer ownership, the two common ones are:
a. Keep it in the family. If your goal is to keep the business alive within the family, then a family member must be identified and groomed? Are they ready to take the reins? This strategy comes with an upside and downside. Upside, you can handpick your successor, which allows you to stay on in a transitional or advisory role. Downside, the next generation may not be interested or prepared to take over.
b. Sell to another company. The upside to this strategy is it allows you to walk away, with no further involvement in the future operation of the business. You can negotiate the price and other details of the sale. Downside. It can be a lengthy process and costly. While due diligence is part of the selling/buying process it can be invasive and extremely time-consuming. Just remember you may have to kiss a lot of frogs before you find the right buyer. - Know the current value of your business. You may think you know what your business is worth. Not so fast. Lots of factors to consider. Have a business valuation prepared by a professional.
- How accurate are your financial records? Potential buyers will expect reliable financial statements. If a buyer senses inaccurate financial statements, they may discount the purchase price, or walk away from the deal. This is an area sometimes overlooked and could devalue your business.
- Do you have a solid understanding of your personal goals, i.e., how much money you will need in the next chapter of your life – a chapter that does not include your company. Once you understand your personal financial goals you can determine if a shortfall exists and whether the value of your company upon sale fill that shortfall. If it does, then you are ready to move forward with the sale. If the answer is NO, then you may need to put the sale on hold and determine what steps are needed to enhance the value of your business to make up for the shortfall.
Retirement plans often incorporate the proceeds from the sale of your business and play a pivotal role in the next chapter of your life. It’s important. It requires careful thought. We can help. Feel free to give us a call.
Mike is a CPA with Burke & Schindler, and can be reached at mcapozzoli@burkecpa.com or directly by calling his office at 513.455.8200