At some point, every owner leaves his or her business, voluntarily or otherwise. After building a company and dedicating your best years to ensuring its success, you will eventually step back and exit. At that time, you want to receive the maximum return to accomplish personal, financial, income and estate-planning goals.
“If you’ve given yourself time and executed all of your planning steps, you can exit on your terms versus being forced or rushed into an exit, which ultimately will prevent you from accomplishing what you want,” says Joel J. Guth, an advisor in the Citi Family Office at Smith Barney, a division of Citigroup Global Markets.
In previous issues, Smart Business spoke with Guth about exit planning and the steps necessary to ensure a successful exit. Here, he summarizes the process and addresses what’s next after the sale is complete.
What are some consequences of not setting objectives and carefully planning for an exit?
Mainly, you could feel seller’s remorse. You walk out and realize, ‘I’ve got nothing to do with my time. I shouldn’t have sold the business. It wasn’t about the money. This is my passion in life.’ Or, you sell the company and realize that you can’t maintain the lifestyle you did when you were running the business. Also, you may underachieve during the next 15 to 20 years in what was capable from the standpoint of returns, gifting, estate planning and so on. You must take time to define your objectives before exiting the business. Otherwise, at the end of the game, you will regret that there was so much more you could have accomplished but didn’t.
What steps must owners follow before they even think about selling?
Timing is the key here, and many owners work backward when exiting. They have a deal on the table, then they set objectives, figure out how much money they need to sustain their lifestyles and what to do with liquid assets. You should work through the exit planning process first, and then structure a deal that will accomplish your objectives. Some steps to guide you through exit planning include: set personal and business objectives; determine the business value and price; preserve, protect and promote value; sell to a third party or transfer to an insider; create a contingency plan for your business; and establish a wealth preservation plan.
After the sale, is the owner truly ‘retired’?
The way to think about an exit is that you are really transferring from one business to another. Your first business may have been manufacturing. Then, you were managing assets that were tied up in the company. Once you monetize those assets into liquidity, your investment still requires careful management. You take on the role of being the CIO of a liquid pot of assets. You are in charge of an investment company rather than a manufacturing company.
What struggles do owners face when they become CIO of their liquid assets?
When you make that transition, you’re forced into a role where you’re less experienced. You may have been running a manufacturing company that sold products all over the world. Maybe you were the industry leader, and there was nothing about that business you didn’t know. But once you sell that business for several million dollars, you are now in the investment business. You do not have near the knowledge in stocks, bonds, hedge funds and municipal bonds as you did in manufacturing. There is a learning curve.
What steps can help an owner manage this ‘new business’ successfully?
Take the same approach as you did when running your company. Write a business plan for how you’ll manage your investments. Establish clear goals and objectives, and devise tangible measurements to gauge your successes. Partner with people who can help you learn as you transition into this new role, which is one you’ll maintain for the rest of your life. Enlist in a proactive accountant someone who is used to dealing with wealthy families. Find an attorney that is in tune with tax and estate issues and a reputable wealth management advisor. By aligning a team of professionals who can work together, you can accomplish the goals you set as you were planning your exit from the business.
Citi Family Office is a business of Citigroup Inc., and it provides clients with access to a broad array of bank and non-bank products and services through various subsidiaries of Citigroup Inc.
Citi Family Office is not registered as a broker-dealer or as an investment advisor. Brokerage services and/or investment advice are available to Citi Family Office clients through Citigroup Global Markets Inc., member SIPC, and Citicorp Investment Services, member NASD/SIPC. All references to Citi Family Office Financial Professionals refer to employees of Citibank, NA, Citigroup Global Markets Inc. and/or Citicorp Investment Services. Some of these employees are registered representatives of either Smith Barney, a division of Citigroup Global Markets Inc., or Citicorp Investment Services that have qualified to service Citi Family Office clients.
Citigroup Global Markets Inc., Citicorp Investment Services, and Citibank, NA are affiliated companies under the common control of Citigroup Inc.
JOEL J. GUTH is an advisor in the Citi Family Office at Smith Barney, a division of Citigroup Global Markets. Reach him at firstname.lastname@example.org or (614) 460-2633.