With retirement on the horizon for many baby boomers, knowing when to retire and how much money you need is a hot topic for business owners. So, it’s no surprise that business succession and exit planning is “trending” in the legal and finance communities.
Oftentimes, a business is an owner’s most valuable asset, having invested time, money, and perhaps a few sleepless nights. Yet, it might be the least liquid asset an owner has. Stocks and bonds can be sold in a day or three, but getting money for your business could take a year or more. And given the number of people ready for retirement, the sale of private businesses will be on the rise.
Know the value of your business and develop your exit strategy early. Having all of your ducks (or golden eggs) in a row never hurts, and key decisions could significantly impact the money you get out of your business. If you delay, the financial impact could be devastating. The vultures will circle if they sniff out a business owner desperate to sell.
Considerations swirling in the minds of business owners include choosing options that provide the most money, ensuring employees keep their jobs, and continuing the business legacy.
All in the Family:
If it is important to keep the business in the family, you don’t want to leave it in the wrong hands. Is there a family member with the skills needed to run and sustain the business? If so, you will need to decide if that person can afford your price, or if you are willing to offer the “friends and family discount.” If your financial position is sturdy enough, gifting could also be an option (discuss this with your estate planning attorney).
Cut and Run:
Turn out the lights, the party is over! Although unpleasant, closing a business is sometimes the easiest — or only — option. Liquidation is most common for high-risk or financially struggling businesses. Unfortunately, assets are typically sold at a deep discount, with little or no value received for business reputation or customer relationships.
Have a Partner?:
This person knows the ins and outs of your business and is a prime candidate to buy out your ownership. If you have a partner, blow off the dust from that old ownership agreement, which may give you the option — or the requirement —to sell to your partner. Many agreements dictate how the transaction price will be determined. It might be based on fair market value determined by an independent appraiser, but it could include a predetermined formula, which might not be a fair price in today’s market. Consult your business attorney to better understand your options and obligations or to establish a new buy-sell agreement with your partner.
On the Market:
Strategic buyers may pay a premium to acquire businesses in their industry niche, with the expectation of significantly improving their purchase. In contrast, financial buyers will only pay for what they see. If you haven’t identified strong candidates to buy your business and you aren’t Joe Salesman, leave it to a professional business broker. They can help look for buyers and structure the deal terms. Also, have a corporate attorney review the proposed deal terms before they are set in stone and help with drafting the sales contract.
Get Ahead of the Game:
Regardless of the plan, put it in place early. This will help maximize your return on investment when the day finally comes to turn in your badge and head for the driving range.
Source: Originally published in the March/April 2015 Golden Isles Magazine