I am a business owner and want to retire by selling my business sometime in the next 5-7 years. Do you have any advice to help me be successful? Ronald
I am proud of you for asking this question because most business owners are too busy working IN their business that they forget to work ON their business. It is crucial to protect the asset that you likely have spent the majority of your life building and have a disproportionate share of your wealth tied up in. And yet, studies show that somewhere between 70 – 90% of business owners have not thoughtfully planned for their inevitable business exit and even those that do plan, oftentimes wait until the 11th hour.
Unfortunately, many times the owner won’t be able to leave voluntarily but will be forced out due to circumstances such as disability, death, or divorce.. Without a proper business exit planning strategy, the event of incapacity or death or the involuntary loss of a key person can devastate a business by forcing liquidation during a chaotic time.
As a result of lack of preparedness, owners often end up selling their business for pennies on the dollar, paying too much in taxes, not being emotionally prepared, regretting their decision, and worst of all, they feel sorely dissatisfied when they exit their business. In addition, many owners allow burnout to lead to hasty decisions.
A failure to plan is most assuredly a plan to fail.
However, with proper business succession planning you should be able to leave your company when you want, to whom you want, and with the amount of cash you need to move onto the next stage of life.
A well-executed business succession plan offers you the following advantages:
- Control of your own destiny
- Value maximization
- Higher likelihood of success
- Peace of mind for you
- Peace of mind for your loved ones
Thus, proper exit planning should be an important part of a business owner’s financial and estate plans. This type of planning, also commonly referred to as “business succession planning,” consists of six important steps:
- Psychological Readiness – Envision Life after Business – address and plan for issues such as loss of purpose, importance, meaning, implication to marriage, etc.
- Setting Financial Goals – Establish Objectives & Resources – A first step in creating a viable business exit plan and strategy is to determine the owner’s long term income needs and retirement goals. From this, the owner will be able to determine how much money the sale of the business must generate in order for the owner to retire comfortably.
- Valuing, Building, Maximizing & Protecting Business Value – Some of the items addressed here are operating systems, realistic growth strategies, intellectual property, & cash flow, among other things.
- Ownership Transfer –Will you sell to a key employee, family member, co-owner, or outside 3rd party? You will need to address many planning items such as management succession plans, family dynamics, changing roles, and funding the business purchase.
- Contingency Planning – Included but not limited to buy-sell agreements, key employee incentive programs, disability, life insurance and addressing the unexpected such as death, disability, and divorce.
- Business Continuity & Estate Planning – How best to protect your heirs, ensure strong business continuity, and plan for your ultimate legacy.
In summary, Ronald, you have given yourself enough time to address the business succession planning process so that you can create a vision for life after business, make sure you know how much money you will need, and prepare for the next stage of your life in a well thought out manner.