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Baby boomers own approximately 40% of the nation’s privately owned small businesses and franchises, and as they retire in the next few years, they’ll need the right strategies for “exiting” their enterprises, whether by giving them to heirs or selling them to outsiders. .
An exit plan is important for many reasons: understanding the overall value and profitability of your own company, planning for the future of your business, and measuring the impact on the new owners, not to mention current employees.
“It’s a well-thought-out plan for business owners to exit privately held businesses when they retire or become incapacitated,” says Jeremiah Foster, founder of Resolve Business Services. Independent business consulting firm in Scottsdale, Arizona.
People who own businesses can exit or divest them in a number of ways, including selling, merging or giving away; Each option has its own costs and benefits. “A properly executed exit plan can help maximize the value of the business, reduce tax burdens, and achieve the owner’s personal and business goals,” says Foster.
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The importance of proper exit planning
An exit plan is especially important now that the country is going through an unprecedented transition of wealth. Boomers are the largest contributor to the creation of privately held companies in the nation’s history, and their members range in age from 58 to 76, says Chuck Canley, business succession strategist and mergers and acquisitions consultant at Premier Sales. In Phoenix.
“These businesses must be transferred and transitioned to a successor,” he says. “The challenge is after the baby boomers, the next two generations combined are younger than the baby boomers.”
So what does this all mean? “There are few opportunities to successfully transfer and transition a business,” Khalili explains.
Adoption agreement. “An exit plan gives you more control over what happens to your business and your employees to maximize your net profit,” he says.
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The basics of exit planning
David McCarville, director of Fenmore Craig PC, says the success or failure of exit plans often depends on owners understanding the fair market value of their business, proper accounting and tax records, and legal contracts. Rights and obligations from any sale of business.
“Understanding the market value of your business requires a fair amount of planning because you need a realistic view of the market value of your business,” he says. “This involves hiring an appraiser who knows your business and can identify for you the unique factors that make your business more or less valuable to prospective buyers.”
You need to support your assessment with professional quality accounting records. “Taking the time to review and organize accounting records allows prospective buyers to quickly complete a due diligence review and saves you time and money in the long run,” he adds.
McCarville added that sellers should get everything in writing, to prevent any misunderstandings later. “Ultimately, an exit plan needs a contract to define your rights and obligations in any sale of your business,” he explains. “So it’s important to understand what options you have to negotiate both your rights and obligations in any sales contract.”
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What are your options?
Kanley’s most common exit plans follow one of the following paths:
The owner remains in the company as chairman of the board and delegates day-to-day responsibility for running the business to the current management team.
The owner cuts all ties to the company by transferring ownership and management responsibilities to company insiders such as key employees, managers or family members.
The owner will install his own management team after selling the company to a related third party who has the ability to exit.
There are other scenarios, of course, including merging with a similar business or selling the business through an initial public offering or IPO, Foster says.
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Which one is better?
To determine which option is best for you, Foster recommends asking yourself the following questions:
Do I want to be involved in the business at some level after I retire or sell? “If the answer is yes, then transferring your business to a family member or negotiating an employee buyout are options that allow you to remain a consultant at some level,” says Foster.
What are my financial goals? “A merger; selling your company to another business, partner or investor; or an IPO are options that can provide the highest returns for your business,” he adds.
What do I want to happen to my employees and/or customers after I leave? “Transferring the business to a family member, negotiating an employee buyout, or selling to a partner or investor are options that have minimal impact on employees,” he says.
How much does my business owe? “If the company is deeply in debt, liquidation, ABC (classification that benefits creditors, informal liquidation) or bankruptcy may make more sense in your circumstances,” he explains.
When and where you can find a professional
As with many trading strategies, it is best to plan an exit strategy thoroughly before using it.
“Good planning requires resources,” says McCarville. “The sooner you start planning your exit, the more likely you are to save time and money in the process.”
Financial experts recommend that small business owners hire an exit planning professional and set aside time to work with them.
The key thing to look for when choosing a professional to help you develop a plan is trust, says Kali.
To build trust, he advises potential mentors to share some of their success stories, discuss some of their failures, and say that they expect a return on their fees.
Experience and communication are important
“Prior experience and good communication skills should be at the top of your list when evaluating exit planning professionals,” whether they’re attorneys, appraisers or accountants, McCarville adds. “Communication is hard and a misunderstanding in your exit plan can lead to critical mistakes, wasted time and lost value.”
In general, exit-planning experts agree that now is the best time for business owners to start working on a business exit strategy.
Khalili says many business owners shy away from having an open discussion about an exit plan, perhaps because it reminds them of their mortality or suggests they are no longer needed in the business. This is wrong.
“This conversation is critical not just for the owner or founder, but for the employees and families the business supports,” he said.
Michelle Talsma Everson is a writer and editor from Phoenix, Arizona. She has written for various media outlets and believes in the power of storytelling to shed light on important topics that impact people’s lives. You can see her work mteverson.com.
This article is reprinted with permission NextAvenue.org, © 2022 Twin Cities Public Television, Inc. all rights reserved.
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