by Kelly Weaver, Small Business Development Center Regional Director
It’s a fact. Every business owner will leave their business at some point, so it makes sense that every business owner should consider how they want to leave. Waiting till the last hour is not likely to give the owner the best outcome.
The most common form of exit is a business sale to a partner, a new owner, another business, a family member, or employees through an employee stock ownership plan. The next most common is liquidation, either intentional or unintentional as in a bankruptcy. Exits can also occur by unfortunate circumstances such as death of an owner or a disaster.
Exiting your business successfully can be just as hard as starting your business. Having an exit strategy will help you focus on how and when you want to leave your business and help you make decisions over the course of time to reach those goals. While it’s really never too soon, exit planning should begin about 5 years before your desired exit.
For most people, exiting a business is a once in a lifetime event which often occurs after you have invested significant time and money. Since small business valuations weigh heavily on the recent financial history and systems in place, you need time to best position your business for a successful exit. Exiting a business can be very complex, so you’ll want to seek the advice of your accountant, attorney, and other relevant professionals as you move forward.
Also, recognize that this is an emotional process, especially for the seller who may have created and nurtured the business for many years. As a seller, take stock of your emotions and your motivations to sell so you can keep your ‘eye on the prize’ when nostalgia starts creeping in or the process gets complicated.
If you are currently in business without an exit strategy, give it some serious thought now. Here are some questions to prompt your planning.
· Do you want to just cut back the amount of time you put into the business, but yet retain ownership?
· Do you have family members or key employee interested in owning the business? If so, you may need to take steps over a period of several years to ensure the best transition.
· Is your business profitable? Does the business generate cash flow?
· Is your current market sustainable?
· Are your business assets in good condition and working order so that they would be of value to another owner?
· Do you have solid business records to share with a potential buyer (i.e., tax returns, internal financials, inventory, business processes, customer contracts)?
Planning your exit can be scary and overwhelming (just like starting a business). With confidential and free consultations, the Small Business Development Center offers a great starting point for planning your future exit.
Kelly Weaver is the Regional Director of the Small Business Development Center which offers free, confidential business consulting to start up and existing businesses. She can be reached at (605) 698-7654 x144. The Center is hosted by GROW South Dakota.