It is inevitable that every business owner will leave his or her company one day. Unfortunately, too few will actually be prepared to leave the business on their own schedule and terms.
Instead, many business owners just hope for the best and leave the company in the hands of fate, says Keven Prather, a financial adviser with Skylight Financial Group who specializes in exit and transition planning.
“Some day, either by choice or not, you will exit your business,” says Prather. “It will either be through a planned exit strategy, or it will be involuntarily, but it’s going to happen. So it makes good sense to plan properly and take the necessary time to make that a successful transition, versus the other option, which is usually a disaster.”
Smart Business spoke with Prather about how to successfully plan for the exit from your business.
How do you choose an exit path?
When planning for an exit, business owners are faced with choosing between numerous exit routes, all of which have their own distinct set of advantages and disadvantages. Should the company be transferred to a family member or a third-party? A key employee? Co-owner? Liquidate? Owners should carefully weigh the advantages and disadvantages of each before they decide which exit path will work best for their given situation. Planning ahead and considering all options becomes imperative to a successful transaction.
The planning process should start at least two years before the owner wants to exit the business, and even as early as eight years beforehand. If you wait until you’re at the point where you’re ready to sell tomorrow, there’s not much you can do then to maximize the value of the company.
A lot of business owners say they have a plan, which could mean they may have a will, or may have talked to someone, but there needs to be something more concrete in place. Business owners need a step-by-step process that clearly defines their owner exit objectives and valuation of their business.
How does a business owner get started with the planning process?
Business owners should create a team of experts to help them navigate through the process. Oftentimes, owners will have one or two trusted advisers, but it’s better to have a collaboration or team consisting of an entire cast of the major players: a tax adviser, a CPA, a qualified estate-planning attorney, investment banking professional and a knowledgeable financial adviser who specializes in creating exit strategies for owners. Each specific expert looks at this issue from his or her own perspective and, when all of these advisers work together, a business owner can feel confident that all angles were considered and the most informed decision possible is being made.