Ah, the new year. Time to get that gym membership. Start that diet. But the beginning of the new year is also a great time to take stock of your current business situation and set some significant goals. Is selling your business, either internally or externally, one of your goals in the next 2 to 5 years?
A recent MarketWatch article on the elements of a successful retirement got us thinking about some key elements of a successful business ownership transition. There are so many baby boomers who are also business owners, and they need to start planning for their business exit and retirement.
Key Steps to Take
First, you need a plan. Before you take any action, we encourage you to develop a Business Ownership Transition Plan. This document outlines how and when the ownership of your business will be transferred to others, either internally or externally, in order to achieve your financial and non-financial goals. Develop a comprehensive plan in order to determine the best strategy for your situation, preserve important relationships, and ensure success. It should be reviewed and adjusted regularly as life happens and circumstances change. Transitioning out of your business is a complex process, not a one-time event.
Start preparing yourself for life after the ownership transition—it takes time to figure out! Whether you want to remain active with your company or leave completely in a few years, start creating the balanced life you envision. It could involve mentoring, consulting, volunteer work, education, traveling - whatever will keep you engaged and satisfied. Taking this step will enable you to lead a full and satisfying next phase of life.
Calculate your Wealth Gap. You must understand how much money you will need to net from the ownership transition. You'll need to quantify your current net worth as well as your lifestyle expenses and what they will be post-transition. You may not realize how much you receive from the business (including perks and paid expenses) that you may have to pay for yourself after the transition. Knowing your Wealth Gap well in advance enables you to reduce your dependence on the proceeds from the sale of your business. Is your business worth enough to fund your next phase of life?
Determine what your business is really worth. Most owners don't realize that their business has a range of values instead of a single value—and no two buyers would pay the same amount. Cash flow is critical to driving value but so is the potential for growth, key employees, quality products/services, and documented processes and procedures. The business cannot be dependent on you.
Still Not Up to the Task of Starting Your Exit Plan? When we ask owners when they plan to transition, they usually say "when I turn XX." But you cannot dictate the best time for the sale of your business. Who knows what the world will be like when you have that important “retirement” birthday! As we know, there are many things beyond our control that impact our businesses including economic cycles, legislation, technology, competition, availability of workers, etc. If you have a plan in place and know what you want to do and, more importantly, what you can afford to do, you can take action when the time is right. Business ownership transition planning will help you develop a vision for the future, examine your financial and emotional readiness, and determine how to maximize the value of your business. It will outline both internal as well as external transfer options that will accomplish your goals and ensure the continuity of your business.
Planning this very important once-in-a-lifetime event will enable you to have a fulfilling life beyond the company and create the best possible outcome.
Happy New Year, and Happy Planning!
All Signs Say that 2018 May Be an Ideal Time to Sell Your Business
Retirement Shouldn’t be Detrimental to Your Health