Remember the last time you entered a multi story building. On or close to the front door is a sign that displays the exits even before you entered the building. It is important to know the exit strategy before you enter the building because of the unexpected calamities that can happen at any time. But what about your business? Every business owner, whether it is your first day in business or you are celebrating your 25th anniversary, needs an exit strategy. I tell my clients that every business owner should be thinking about their eventual departure from their business because one of two events is going to happen to them. First, you will transfer ownership of your business during your lifetime because you want to get out and do something different with your life. With a plan you will be able to sell to a third party, your key employees, or family members. Without a plan you it will have to be liquidated and you will receive pennies on the dollar.
Second, you will die or become totally disabled, and the business will have to be liquidated unless you have a serious business continuity or “ strategic contingency plan”. Because you have no readily marketable value for your stock or business entity, like owning stock in Microsoft, there is no one willing to purchase your shares for their full value. It is a much more serious a problem as the business must still operate and your family will still be around even after you are gone or incapacitated. Therefore it is imperative you create an exit plan before one of these events come true.
To help you formulate a well designed exit strategy you should be able to answer YES to the following questions:
1) Do you know the following objectives in leaving your business such as departure date, cash flow needs and to whom you would like to leave the business?
2) Do you know the value of your business?
3) Do you know how to increase value in your business by developing your most valuable assets of the company – your key people?
4) Do you know how to sell your business to a third party which maximizes your cash flow, minimizes taxes and decreases your liability?
5) Do you know how to transfer your business to key employees, co owners, or family members while paying the least amount of taxes?
6) Have you implemented to the best of your ability the necessary steps to insure that the business continues if you don’t?
7) Is your family’s financial security protected if you die, become disabled or suffer a critical illness?
If you are like most business owners, you were not able to answer “yes” to many of the questions. However, if you are going to be successful in exiting your business in style one day you need to answer yes to each and every one of these questions. That is why you need to work with an advisor that helps you start the conversation, asks you the tough questions, follows through on appropriate recommendations and motivates you to implement strategies and solutions.