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The right way to exit

How to transition from your business on your terms, for your price

By Lewis Hunter

As a business owner, you are accustomed to, and perhaps even thrive upon, solving today’s pressing problems and pushing on totomorrow. But have you looked beyond this week, this month, or even this year?

The average owner spends 80,000 hours building their company but only six hours planning its transfer. As a result, 80% of business owners fail to get top dollar when they sell. That is like winning a free lottery ticket on a drawing for a $1 million jackpot—you may have won, but you missed out on a much bigger prize.

Just as winning the lottery is not a viable strategy for achieving your dreams, nor is hoping that you will sell your business for enough money to support your future lifestyle.

Use a business transition plan to control your exit and maximize your payout. Plan now when you will exit, how and for how much, rather than leaving it to chance.

Analyze your current situation

As with any journey, you must know where you are before you can determine where you are going. Transition planning involves reviewing your business and personal life.

Review your personal finances; focusing on the wealth gap you must close to support your goals for life after your business. If you want to retire, how much money will you need and what price would you have to sell your business for to net that amount?

For your business, document your vision and strategy for the company. Identify critical success factors and measure performance against them through operational metrics. Undertake legal and taxation reviews to ensure compliance with regulations and to protect against risks.

Identify your objectives

Set clear, measurable, attainable objectives for your life after your business, and your business’s life after you.

Business owners typically start planning transitions for one of three reasons:

•A personal health scare, or death or illness of someone close to them, has reminded the owner of their own mortality. They contemplate what would happen to their business and their loved ones if they suddenly stopped working.

•The owner has tired of their work and wants to do something different, such as go into public service or spend more time with friends and family.

•They desire to leave a legacy, ensuring the company survives them and that their work continues to benefit others.

Don’t wait for one of these to occur. Identify your long-term financial and lifestyle needs, the needs of family and stakeholders, and your desired business legacy.

Select your options

Whether you will transfer your business, continue working or retire, there are many ways to accomplish your objectives. Some options to consider and factors to review:

•Internal transfer—Consider whether the next owner(s) would be capable of running the business. Be impartial, even if they are one or more of your children or a long-time employee. Also, ensure you achieve your personal financial goals without irreparably impairing the company. Use trusts, buy/sell agreements, employee stock ownership plans or management buyouts, for example.

•External transfer—Your influence over your company’s future may wane with an outside buyer. Their plan should align with your vision for the business and the needs of your stakeholders, including employees and customers. Would the buyer be making a strategic acquisition with the intent of operating, and perhaps growing, the business over time? Or would they be a financial purchaser, hoping to squeeze cash and profit from a future sale? Will you solicit bids for the company or negotiate with a single prospective buyer?

Identify the options available to you and evaluate each one based on your objectives. Choose one and put a contingency plan in place so the business can operate and your personal goals can be achieved if you cannot complete the transition as hoped, perhaps due to health or performance issues. Use insurance and legal protections.

Create your plan

When will you transition and for how much? What will the acquirer look like? How will your family’s and stakeholder’s needs be met? Compile the answers in your plan and state how you will attain your objectives. Be specific.

The wealth gap between what your business is worth and what you need to sell it for can provide your timeline. If it is worth $1 million today and you need to sell it for $2 million, will it take three years to close the gap? Five?

Decrease the company’s dependence upon you. Allow time to build business value by grooming leaders, implementing systems, improving processes and increasing revenues and profits.

Your transition should occur when you want and in your accordance with your wishes for the future ownership of the business and at a value that fulfills your wealth objectives. Spell out roles and responsibilities for key individuals, draft the management structure, and detail how you will be paid.

When your transition plan is complete, break it down further into tasks with due dates and responsibilities assigned.

Create your plan, build your business’s value and transition when you are ready—then you won’t need to win the lottery to achieve your dreams.

Lewis Hunter is a Jacksonville-based business transition specialist with ROCG Americas, LLC, an international consulting firm that helps owners of small- and medium-sized companies start, build and exit. He can be reached at 904-400-6610, lewis.hunter@rocg.com, or through http://business-transition.com/.

Get ready

•Set up a team of advisors.

•Draft a letter to your spouse or loved one, stating whom to contact and what to do if you die or are incapacitated before you transition.

•Perform a business valuation.

•Measure the wealth gap between your company’s current value and what you need to sell it for to achieve your personal financial goals.

•Create your transition plan.

•Optimize your business.

•Build business value by eliminating the company’s dependency on you as much as possible.


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