Unpredictability in the market is forcing many small business owners to think about something they long overlooked: An exit plan.
Business owners now considering retirement are facing unusually difficult conditions for selling or handing off a business. But their circumstance should serve as a lesson to all small business owners. It’s crucial that your exit or succession plan take into account the effect of an economic downturn.
Exit plans are essential in companies large and small, and not strictly for the purpose of letting the owner and founder retire. They certainly set in motion a series of triggering events for the owner to get his or her money out of the business at retirement, but they also incorporate succession and other strategic moves a company might make to assure its future in family hands or in the hands of a new owner.
Many experts recommend the exit plan be part of the original business plan. At the very least it should be done 3 to 5 years prior to the transition. An experienced professional can be a helpful liaison that works with other key professionals to help owners find answers to the primary concerns.
The business shouldn’t be thought of as a paycheck, but as a wealth creation tool that can provide support for generations. Wealth is accumulated money that provides the owner options to invest in their own business, other businesses, or it can be used to support other personal goals.
How can the business be used as a retirement planning tool to provide a means for the owner to achieve their own retirement dreams?
Considering the issues above, the answers to the following critical questions will help the owner and their key partners design a plan that works best for them.
Questions to Ask
• Should a business be passed on to family, a partner or should it be sold or closed?
• Does the owner want to do this for the rest of their life, or do they have other goals?
• How many more years does the owner want to run this business?
• What’s the optimal way to get rid of the business when I’m ready to go?
• What’s the business worth now and how can it be made more valuable in the future?
• If family will take over the company, have they been involved in the business planning?
• What happens if the market takes an unexpected dip and changes the landscape of your business?
• Do strong business relationships exist?
• What if someone wanted to purchase the business today?
• What are the tax consequences of selling and might they be managed?
• How does the owner communicate this plan with all other business stakeholders?
• What about employees, clients and customers? How will they be protected if the owner dies or leaves the business?
• What financial expectations does the owner have and how can they be accomplished?
• How should investors in the business be compensated if the owner leaves?
In many cases, the process of asking these questions can get an owner closer to creating an exit plan than they have ever been before.
Jami Peebles is the Senior Vice President & Manager with Central Trust & Investment Company in Springfield, Mo., affiliated with Empire Bank.
