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Business—like life—is risky enough without taking unnecessary chances. You need to be prepared and that means developing a proper succession plan now, so it’ll be there when you need it most. Engaging with a succession specialist early will help you establish a team of insurance agents, financial advisers, lawyers and accountants who will work together to ensure you get the most value for your business so you can exit on your own terms.
As you move consider transitioning out of your business, the following advice will help to ensure that you’re in a good position to sell if that happens earlier than you expected.
1. No matter where you are in the business cycle, you will have to make time.
For entrepreneurs who typically put in long hours taking care of day-to-day tasks, it can be tempting to wait until you’re ‘not so busy.’
The reality is, you will always be busy. Ideally, transition planning should be done over four or five years in order to ensure the most successful outcome, and, the earlier it’s done, the better.
2. The value of a business is not based on what you think it is worth, but on what the market will pay.
If you need a certain amount of cash out of the business, get at least an approximate valuation as soon as possible.
Then you can start to build value by identifying the true value drivers in your business and implementing an enhancement process that might include developing a key employee retention program or initiating a private advisory board.
Planning ahead will give you time to identify strategies that will give you the biggest benefit and also to put those plans into action.
3. Exit planning requires a team approach to ensure the interests of all stakeholders are managed.
Shareholders and spouses need to have input on your plan and several conversations may be required to determine everyone’s goals and structure a plan to achieve those them.
Insurance agents, financial advisers, lawyers and accountants will also need to be involved. Establishing a team early will ensure you are in a position to manage your advisers to get full value.
4. Potential buyers need to feel that the business can survive after the transition.
Many entrepreneurs are highly involved in their businesses, even at the mature stage of the business cycle. They have the relationships with key customers and suppliers, make all major decisions and often hold a great deal of information in their heads.
Begin to focus on building management that can take over these aspects of the business so that a new owner can relate relatively easily to how their team operates the business.
5. Without effective tax and estate planning, you run the risk of ending up with less than you anticipated.
The decision to sell to an outside party will have an effect on your tax situation and should be discussed with an experienced tax adviser who can take you through your options and help you create a plan that minimizes immediate and future tax liabilities for all key parties. Tax strategies continually change so ensure this aspect of your plan is updated regularly.
Client Groups:Private Enterprise
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