Ready Set Go
As a business owner, your business, family finances and personal life are intertwined. It stands to reason that a successful business transition should incorporate all three.
For Starters
1. Are your goals in each area – business, financial and personal, defined? And, are they consistent with one another?
For example, if you want to pass the business onto your children, but they cannot afford to pay you enough to meet your financial needs, then your financial and personal goals are not aligned.
2. Have you educated yourself on the process and identified professionals that can assist you?
Consider talking about your exit strategy with a financial planner, CPA, exit advisor and/or attorney. This is probably one of the biggest decisions you will make; best to have your ducks in a row and be supported by professionals you trust.
3. Do you have a contingency plan in case something were to prevent you from operating the business or force you to transition?
Sadly, many businesses are forced to liquidate upon the death of an owner. This can be avoided with adequate [exit] planning, thus preserving both the business and personal finances.
The Business
1. Have you had a valuation of the business completed in the last year?
It is unwise to sell any large asset without having a good idea of the market value. Unfortunately many business owners think their business is worth more than it is. Best to have realistic expectations before beginning any transition process.
2. Have you identified and prioritized value enhancement opportunities? Are plans in place?
This is particularly important if the business value won’t satisfy your financial needs. There are lots of ways to increase the value of a business – from customer diversification and margin improvement to better recordkeeping, and everything in-between.
3. Is there sufficient management so you could walk away from the business without a hiccup?
Most buyers want strong management in place to run the company after the owner has left. Strong management means that you can take a six-week vacation and unplug all your devices. Can you?
Your Financials
1. Do you have a financial plan? What are your financial needs in retirement?
Working backwards, will your financial needs be met from selling the business? If not, then adjustments will need to be made.
2. Is your business and estate structured to minimize taxes?
Obviously, the less taxes you pay, the more you net. Is your estate plan up-to-date, tax efficient and supportive of your business transition goals?
And, Personal Life
1. Have you envisioned a post-retirement life?
Many business owners find it difficult to transition from their business for a variety of reasons. What is your plan?
2. What terms are you willing to make to a potential buyer?
Having an “earn-out” or staying involved during a transitional period may impact retirement plans that require significant capital or time away. Have you thought about what concessions you are willing to make?