Planning your exit

As the baby boom generation ages, they have begun to think about retirement. But for those who have spent their lives building a business, retiring may not be an easy prospect. Many of these business owners don’t have company-sponsored pension plans, and have most of their money tied up in the business. If you or your clients are facing this situation, now is the time to start developing an exit strategy.

What is an exit strategy? Among other things, an exit strategy involves developing a plan for passing on the operations and responsibility of the company, transferring ownership, and probably the most important, extracting and preserving the owner’s wealth. Extracting one’s wealth makes it much more difficult to cash out when retirement is near.

Because a stable business is worth more than an unstable one, creating a seamless transition is essential to maximize the seller’s yield on the sale. Developing an effective exit strategy involves planning on several levels. This means planning ahead.
ASSESS YOUR NEEDS. The first step in creating a successful exit strategy is to access your needs. Some important questions include: Are there family members or trusted managers to take over when you retire? Have you planned for capital gains or estate taxes? When it comes to preserving your wealth, how does your business fit with other retirement assets which you may hold? Ultimately the most important question for business owners is will there be enough wealth generated from the sale of the business to retire on?
LOOK AT YOUR OPTIONS. When it comes to an exit, most business owners are unaware of the options they have. Depending on specific circumstances, the following options are common.
Sell your shares back to the company. If partners are involved, often times there is a current buy-sell agreement in place with should address buy-outs and retirements. If no buy-sell agreement is in place, it is suggested you get one immediately.
Bring in a strategic partner. If you have a little time before retirement, bringing in a partner either through merger, joint venture, or through a private sale, may provide you with some immediate liquidity, while allowing you a graceful transition from your business. Additionally, the successor for the remainder of your company has been identified for a future transaction.
Make a private sale. Sometimes selling your business is the best option. Many variables arise when considering a sale: confidentiality, business value, when to tell employees, current management, leveraged buyout or installment sale, etc. Sell the business but keep the real estate. If you own the real property which your business occupies, it isn’t always a good idea to sell it with your business. Many factors influence this, but keeping the real property may give you the opportunity for ongoing income, may ultimately increase your after-tax yield and offer you leverage for other investments.

MAKE AN EDUCATED DECISION. If you are facing retirement and own a business, now is the time to begin creating an exit strategy. The same amount of energy you have devoted to building the business now needs to be spent planning your exit so that you can fully realize the value that has taken a lifetime to build. Qualified professionals can help assess your needs, answer all of your questions, and evaluate the options available to you. Ultimately the goals of your professionals are to maximize the proceeds from the business sale, and preserve that wealth into the future.

Creating an exit strategy for you and your family can be a little tricky. Worse yet, the stakes are high without knowing all your options. With dozens of variables surrounding the sale of your life’s work, we firmly believe an educated decision is the best one.