This is a big question we get asked a lot when it comes to business planning.
An exit plan lays out a road map for how you will sell or gift your company when you are ready to move on to the next chapter of your life. The actual sale of your business may be several years in the future, but planning ahead can help you better manage your financial goals and prepare for all outcomes to mitigate losses or potentially increase your total return.
Owners that have stock in large companies that are traded on open markets can sell their stock quickly. For example, if you own stock in IBM, you are able to go online and sell your stock in just a few minutes. However, if you have ownership in a company that is not traded on the stock exchange, you need to have a better plan.
This is especially critical since most small businesses represent 50% or more of the owner’s net worth. Most owners of small businesses look to the proceeds of the sale of their company to help fund their retirement. If you’re in the 75-80%, closing the doors and selling off assets is a poor way to try to get your money out of your business, don’t you think?
Whether you are a small business owner or the leader of a large corporation, it is wise to have an exit plan to limit any personal losses in the event of an unprofitable sale or significant change in the market.
There are many benefits of planning early. Proper planning for the sale of your business often increases profitability and cash flow, therefore the earlier you plan, the more profit you get to keep or use to fund other retirement options.
Exit planning usually starts with a business valuation, so you get a realistic view of what your business is actually worth based on the company’s financials. Having this handy sets the expectation for potential buyers in the future.
The next step is to ask yourself what you want from the business. Here are some additional questions you should answer during your planning time:
• What are your goals in selling?
• When do you want to retire or leave your business?
• Who would you ideally like to transfer ownership to?
• How much do you need to get out of the sale of the business to maintain the lifestyle that you want in retirement?
As you begin to answer these questions consider the best and the worst-case scenarios so you can make contingency plans accordingly.
We would be happy to consult with you to help you understand your specific business interests and help you plan an exit strategy that makes sense with your personal and profit goals.
Contact us today to set up a no-obligation appointment with a member of our leadership team.