There are many factors that contribute to a successful exit from a business. Here are seven key areas that owners need to understand and address that can help lead to a positive transition experience. This takes time, but it is worth the effort. When it comes to planning for the future of your business, your family, and your retirement, there are no shortcuts to success.

  1. Understand the marketplace and timing – Many owners may think they can sell their businesses and retire whenever they decide the time is right. That’s generally not the reality. Owners need to understand that the potential sale of their businesses will be affected by external market factors, such as the number of baby boomers who are now looking to sell their businesses during the next decade. In addition, the marketplace is a complex world of investment bankers, private equity groups, lenders, financial buyers, lawyers, and due diligence, which will likely require skilled guidance to navigate. To mitigate external factors, business owners need to understand what buyers and lenders are looking for, so they can be prepared and put their companies in the best possible light. Taking into account the number of market forces and the chance of having a successful external sale, many owners determine that an internal transfer may be the best option for their particular situation.

  2. Develop a plan so you are ready when the time is right – The best way that owners can determine the optimal option and timing for their transition is by creating an exit or business ownership transition plan (BOTP). A BOTP is a comprehensive written document that outlines how and when the ownership of a business will be transferred to others, either internally or externally, in order to achieve the owner’s goals. An effective exit planning process will require you to create your written plan or roadmap showing where you are today and how you can achieve the life you want tomorrow. And, just as building your business has taken years, you want to make sure that you have enough time to plan for your future and the future of your business. We typically suggest 3 to 5 years in advance.

  3. Determine your readiness for a transition – Preparing yourself for the sale of your business is the first and most important step. Your identity may now be one with your business. It will take time to separate the two. You should consider both financial and non-financial goals, and consider each of the multiple facets of your life as you architect your plan, which includes identifying your fears, concerns, and any other barriers so that you can address them early. Most business owners have never determined how much money they really need to net from their business sale to achieve their financial goals, which we call your Wealth Gap. The key here is net, which is what the owner “takes home” after transaction fees and taxes. Taxes and fees can gobble up a major portion of your business sale proceeds. Understanding these numbers is critical for every owner.

  4. Analyze your exit planning options – If you plan ahead, you may have several different selling options, both internal and external, which need to be aligned with your financial and non-financial goals. It is important to understand that different exit strategies have different transfer values, as well as different fees and taxes. There are pros and cons to each type of transfer and assessing the different options for suitability or how they will either accomplish or not accomplish your goals is a crucial step in planning your business exit.

  5. Minimize taxes and fees – Transfer taxes is a very complex area, and not usually at the top of an owner’s list to learn about. However, the tax bite on business transfers is often at least 30% and can be as high as 50 or 60% of the sale proceeds! The good news is: There are tax planning techniques that can be employed before the transaction and during the negotiation to keep taxes to a minimum. Owners need to understand this well before they attempt to sell their businesses either internally or externally. Understanding the fundamentals of how different types of business sales are taxed will enable owners to evaluate the components of buyers’ offers much more thoroughly and negotiate accordingly.

  6. Develop contingency, financial, and estate plans to protect your wealth – Owners will need to determine how the business can continue without them, and secure the necessary insurance that will enable them to avoid financial disaster in the event of death or disability. Additionally, setting up asset protection and estate planning to protect your assets can help protect you, your company, and your family, while you are still living and upon your death. If not done correctly, assets can be wiped out by unforeseen taxes, lawsuits, and many other unfortunate circumstances.

  7. Maximize company value – Owners who are thinking about selling their businesses need to be prepared, consider all of the factors of what comprises business value, and understand what their business is worth from the point of view of prospective buyers in the marketplace. Business owners need to remain vigilant and nurture their companies to maximize and protect the value all along the way. You can read more about increasing business value here: Top 8 Drivers of Business Value.


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