As business owners, planning for our exit is something we tend to put off until next year because of more pressing matters that must be dealt with right now. We don’t make planning for what could be the biggest transaction in our business life a high priority. What makes this habit more befuddling is that for most business owners, their business makes up 80 percent or more of their total net worth.
This article is a call to action. Hopefully, it will create a concern, even a sense of urgency that will motivate us to start planning now for that big day when we walk out the door for the last time.
To create an effective exit plan, there are a few critical first steps that must be addressed, beginning with meeting with the all the owners of the company to get a feel for the lay of the land. It sounds simple, but it’s likely not everyone will be on the same page.
Owners in the company may be at different stages in their careers. Some may be financially and emotionally ready to go onto the next adventure, whether that is retirement or another business venture. Some may be close to retirement age, but financially not in a position to do so. Others may be hitting their stride and envision greater growth for themselves and the company and want to stay in the business and reap the rewards. Some of the younger owners may want to aggressively grow the company, while some senior owners may want to stay status quo and minimize risking company capital on new ideas or ventures.
Having competing interests tugging at a company when an owner wants a successful exit strategy will be problematic and time-consuming.
Most successful owners who gracefully manage to transition into their next stage of life and leave a healthy business behind, do so through formulating a clear plan that is implemented with dedication and hard work.
Typically, four factors play a key role in the satisfaction of each party involved:
1. A willingness to engage the right professionals. As business owners, we are very successful at what we do, whether it is sales, manufacturing or professional services. When it comes to business, the value of the business in the current state may not be sufficient to fund the retirement desires of the owner(s). The owner may not have the skills to enhance profits or develop a strong management team. Smart business owners will recognize that the skills that made them successful may not be the skills that will get them successfully to the next adventure in life.
2. Put a plan in motion several years in advance of the desired exit date. If you are hoping to transition your business to your management team, it typically takes three to five years to develop the bench strength and knowledge in that team. Remember, you are building a next generation of potential owners who are eager to assume a bigger role in the company and willing to take on the risk of ownership. During the time leading up to the transaction, the senior owners and the consultant team help prepare the next generation to take on the mantle of ownership.
3. Creating a business with a stable system and a qualified human element that helps sustain the business over the long run. Owners who built up a profitable business with loyal customers, a great reputation and flair for customer service are more likely to get the best price for their business when they exit simply because it is a business with high value characteristics.
4. Retiring owners making an effort in the years leading up to the transition to establish life pursuits unrelated to the business. Owners with the greatest ease of transition are those who remain dedicated to the success of the business without letting it define them or become their most important personality trait.
Owners approaching retirement might start their exit planning by asking three questions:
■ Is my business prepared to transition to new leadership?
■ Am I prepared financially?
■ Am I prepared emotionally to live without the identity of the business?
If the answers to any of these questions cause some discomfort, now is the time to start to strategize and shore up for the future.
Chris Wilcox is the taxation and transition partner and co-founder of JW Advisors, a Las Vegas-based consulting firm specializing in business financial consulting, litigation support and forensic accounting, assurance and tax services. Reach him at 702-304-0405.