Sooner or later, you’ll leave your business. Asking yourself the hard questions now can save you time and stress as you exit your company later
Have the customers received their orders? Have my employees been paid? Am I getting paid this month?
These are probably just a few questions you’ve asked yourself as a business owner. As the head of your company, it’s safe to say you have many responsibilities. Too often, however, business owners get caught up in the hustle and bustle of running a company forget to plan for their future, including their exit strategy.
While you might not leave your company in the near future, you will at some point. How you choose to exit will ultimately be up to you, but in the meantime, it’s important to consider your options and proactively plan for your future. As you plan your strategy, ask yourself these questions:
1. Who will take over my business?
While you can choose to sell or liquidate your business, you can also hand over the reins to qualified successors who can run the business in your stead. In order to ensure the smoothest transition possible, you should start the succession planning process. Here are some things to keep in mind:
- Critical positions must be filled. As you prepare to leave, you must identify who will take on your role and the roles that are fundamental to your business’s success. If these positions go unfilled, it could negatively impact the company and its growth, as well as making it much harder to sell profitably.
- The successor and key team members must be trained. It’s not enough to just fill critical positions. Your successor and key team members must be given ample time to learn new skills and transition into new roles. Whether you choose to pass your business on to a family member or someone outside your organization, train the new leader accordingly.
- Have a continuity plan in place. At some point in time, your business will face disruption, whether it’s a natural disaster, cyber-attack, or simply your exit from the company. Create a continuity plan to ensure your business continuously runs and is able to serve clients with the same level of quality—whether you’re present or not, and whether you still own it or not.
2. What are my financial goals for my business?
You want to see your business succeed but gauging success can be difficult if you can’t estimate its current value. Not knowing how much your business is worth can lead to problems later on when it’s time to sell, extract value through a loan or buy/sell agreement, or transfer the business to someone else.
Enter the Value Builder System, or VBS. Created by entrepreneur and author John Warrillow, the VBS offers a straightforward approach to increasing the value of your business. Your company’s value is determined—and driven—by eight multiples. Consider these “drivers” as you plan your business exit and ask yourself these questions:
- Financial Performance. Do I have records proving my business is creating revenue and/or is profitable?
- Growth Potential. How likely is my business to grow when I’m not here?
- Switzerland Structure. Is my business dependent on a particular client, supplier, or employee? Is it dependent on me as the owner?
- Valuation Teeter Totter. How much cash does my business need to operate?
- Recurring Revenue. How much of my revenue is expected to continue in the future?
- Monopoly Control. Is my business different from others in my industry?
- Customer Satisfaction. Do my customers return again and again?
- Hub & Spoke. When I leave, will my business still run like a well-oiled machine?
Whether you plan to pass your business on to someone else (like a family member or employee) or sell it to an outside party, the VBS can increase its value and smooth the transition. Start reaching your financial goals by learning your business’s Value Builder Score.
3. Will I be ready to retire?
You might have financial goals for your business, but that doesn’t mean you’ve considered how and when you’ll retire. According to a recent survey, nearly two in five small business owners don’t think they will be able to retire before 65.
Even if you don’t plan on retiring in the near future, the sooner you start preparing, the better. There are a variety of traditional retirement plans both you and your employees can contribute to, including a SIMPLE IRA or a SEP IRA, but perhaps your most obvious retirement asset is your business itself.
Selling a business successfully is not easy, however. Market conditions will play a big role in your ability to sell it, so be sure to build flexibility into your retirement plan. That way, you can sell your stake at the most opportune time. Other factors—your location, your lifestyle, the number of family members who depend on your support, and any passive income—will also affect your retirement plan as well.
Another important part of a successful exit strategy is estate planning. Unfortunately, unexpected events do occur. An estate plan can ensure your assets and money go to your desired family members, minimize the amount of time your assets have to go through probate, and also decrease the amount of taxes paid out at the time of your death.
4. Who will help me along the way?
Exiting your business is a big decision, and as such, you need the right professionals to guide you through the process. From developing a succession plan to retirement planning, a skilled business advisor can walk you through the process of designing a smart exit strategy—ideally, far ahead of when you plan to walk away.
Provident CPA & Business Advisors helps successful professionals, entrepreneurs, and investors get more out of their business and work less. Typically, our clients reduce their taxes by 20 percent or more and create tax-free wealth for life. Contact us for expert advice on tax planning as well as our business advisory services, and discover how we help businesses exceed expectations.