Things to Consider When Planning A Business Exit
Planning a Business Exit
Congratulations on successfully building and growing your business. The odds were against you surviving more than 5 years, but you beat the odds. Have your thoughts now turned to retirement? Or cashing out? Successful business exit or succession require just as much planning as growing and running the business.
1.Plan the Exit
A properly planned exit ensures that you keep the benefits of your hard work and your vision for the business is carried on. Exit or succession plans can sometimes take years to devise and implement. The sooner you start planning, the more options you will have and the greater your chances for a good outcome.
2. Ask Yourself These Questions
Do your children want to inherit your business? What if only some of your children want to inherit your business? Do managers or employees want to purchase your business? Are these people capable of running the business, either now, or with a few years of training? Does a competitor want to acquire your business? Or do you need to search for someone willing and able to acquire and pay for your business?
3. Value Your Business
Are you being realistic about what someone would pay for your business? Business owners frequently have exaggerated ideas about the value of their business to a third party. Professionals like accountants, attorneys, and business valuators should be consulted early in the process. There are sometimes ways to enhance value substantially in a few short years (another reason to start planning early).
4. What Do You Actually Own?
What are the assets that you actually own and can sell? Do you own the business real estate or are you renting? Is essential equipment owned or leased? Are you a licensee of essential software or patented inventions? Are there nontransferable licenses or permits such as liquor licenses? Be careful not to sell things, or promise to sell things, that you don’t really own.
Taxation is always an important consideration. Many deals are driven by the tax consequences of the various options. Your tax professional will need time to analyze the options. More time may be needed to implement changes that can result in you keeping more of the purchase price (another reason to start planning early).
Transferring your business to your heirs may involve making gifts rather than selling. You may need to form a corporation or limited liability and put the business into it – allowing you to make gifts of fractions of equity over several years. Depending on the value of the business, and the timing and value of the gifts, there may be estate and gift tax consequences. Accountants, valuators and attorneys all need to participate in making a plan (another reason to start planning early).
If only some of your children want to take over your business, insurance may be used to equalize the value of what each one inherits.
8. Management Succession Plan
Unfortunately, not all exits are planned. Death and disability can cause unanticipated changes in management. Insurance policies are part managing such events, but alone are not sufficient. A written management succession plan allows people to follow a well-considered roadmap at a time of trauma and crisis.
Every business, and every family, is different. There is no ‘one size fits all’ plan for succession or exit. The one piece of advice that is universal is to start early when planning your strategy for moving on. If you want to discuss developing a succession plan for your business, we can help.
Gary Schuster is a Partner with the firm and practices Business Law, Intellectual Property and Arts & Entertainment
law. He can be reached by phone at 866-303-9595 toll free or 845-764-9656 and by email.