No Way Out

I frequently talk to my clients, particularly small business owners, about the need to have an estate plan.  Taking that theme one step further, business owners need to have an exit strategy.

I am currently working with a couple of clients on succession planning. Many more businesses I represent need this planning, but have not even started.  As a private business owner, there are only three options for getting out of your business: (i) transfer it to an insider, (ii) transfer it to an outsider, or (iii) go out of business. Unfortunately, many private businesses end up in the third category by default.

Transferring to an insider means passing the business to your family or selling the business to a key employee. These transitions cannot happen overnight. They take planning. If a child or an insider is going to buy the business they have to be trained to run the business. Plus, they need the financial wherewithal to pay fair value for the business. If they are going to receive the business as a gift, how is the owner going to fund retirement?

Transferring to an outsider means creating a market to sell the business. Who might be interested in buying the business? Trade magazines are full of ads by business brokers trying to sell mom and pop businesses. For to that to work, the business has to generate a price that both satisfies the owner’s needs and pays the broker. Competitors might be interested in buying the business, but how do you find out without the word getting on the street you are looking to sell your business? Regional or national firms might be interested in acquiring the business. How do you tap into those markets?

Look to your team of professional advisors, particularly your CPA and your business attorney, to guide you along this path.  And you need to start long before you are actually ready to get out of the business.

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