Guest article by Stu Welsh
There comes a point in every company’s journey where the owner needs to decide whether or not they wish to continue running their business. This crossroads may be prompted by health concerns, getting older and reprioritizing, or even just an owner deciding they would like to transition to a different role in life.
Even for business owners who achieved great success in running their business, the job of planning their exit requires different guidance, resources and education and very often the owner only does this one time. Business owners shouldn’t have to go through this process without support, education, or resources. There are many decisions that will need to be made, and having a Certified Business Exit Consultant (CBEC) can help owners choose the best path for themselves and for their business.
You’ve put a lot of time and effort into building this business, and you want to be able to best serve its interests – as well as your own – as you transition. Read on to learn more about some of the options you may have as you develop your exit strategy.
What is Exit and Succession Planning?
Most owners feel that when they’ve decided that they are ready to exit ownership of their business, the process of assessing the business and developing an exit strategy begins. It is actually better to begin the exit planning process as early as possible to gain the greatest business value and smoothest transition. Business exit consultants spend a considerable amount of time getting to know the business owner and their staff, and also trying to understand what their ultimate goal is when it comes to transitioning out of their business.
The role of a business exit consultant is to connect the pieces in order to facilitate a smooth transition. A successful exit involves solid communication between all invested parties.
Are you ready to exit? Take the Business Exit Readiness Index (BERI) survey to find out.
Options for Exiting Your Business
Regardless of your reason for deciding to exit your business, there are several plans to consider. It’s just as important to eliminate what doesn’t fit as it is to decide what does in order to feel confident about your chosen strategy. Based on your specific needs, there may be several options for you to learn about before your ideal path becomes clear.
Here are a few possibilities for exiting your role as business owner:
Selling Your Business
When asked about the exit strategy they are considering, the most frequent response from business owners is that they plan to sell. Selling has the appeal of a more immediate payout and at times a clean break. While this may be the best option for your specific business, there are still many questions to answer before going down this path, such as: Will you sell to a competitor? A private equity firm? What is a fair value for your business? What are owner add-backs and why are they important?
Making sure the business runs well without the current owner is an important piece of a successful and profitable business transition. How dependent is the business on you and how does that impact business value? Take the Owner Dependence Index (ODI) survey.
Internal Transfer of Your Business
Depending on the structure of your business, you may decide to conduct an internal transfer. This can look like employees taking control of the company via stock ownership. Or perhaps there is a member of your company’s management team who is interested in becoming the next owner, and you believe they have the skillset to do so.
Alternatively, you may wish to acquire a smaller business with the goal of eventually transitioning the owner of that business into your role. The owner of the acquired company could be mentored along the way and become an eventual buyer of your company.
Giving Your Business to Family Members
Another possibility is passing along your business to family members. Keep in mind, however, that younger generations are proving to be less interested in taking over the family business. This is due, at least in part, to hesitation about taking on the challenges they’ve seen their parents face.
Next Steps in the Planning Process
Once a strategy has been chosen, the second phase of this process is implementation. Oftentimes, this involves doing work on the business itself to ready it for transition. For example, a business owner who’s decided to sell may first need to make some improvements to the business to get top dollar. This is a lot like when you are selling a home. Sure, you can sell the house “as is,” and leave the walls without a fresh coat of paint, but if you take the time to paint the walls, you will get a premium for the house. On the other hand, if you leave this for the new owners, they will certainly expect a discount on the purchase price.
A critical part of the exit and succession plan is determining what is next for the owner. They need to be able to put their time, experience, and wisdom into something significant. It could be staying partially involved in the business as a member of the Board of Directors, or being a consultant or advisor to the business. It may be a new business, family project, or time investment into a favorite charity. That wisdom, experience and energy needs to go somewhere, and identifying a path that combines what the owner loves to do with their skills and talent is essential for a positive transition experience.
BradyRenner Is Here to Help
The CPAs at BradyRenner know how to run a successful small business from its inception until closing. Their combined decades of experience make them the perfect choice for your business exit and succession planning, which is part of an entire suite of financial services they offer to guide small business owners.
Contact BradyRenner today to discuss how they can help you successfully transition out of your role as business owner.
Special thanks to our guest writer Stu Welsh, a Certified Business Exit Consultant whose company, EGT Advisors, helps business owners make important decisions regarding their business’s future.