Because not all exit plans are equal, consider the options below, so you can identify the way you want to exit your business and plan to make it happen.
1. Just close the Doors
You find you have waited too long to build a strategic exit plan leaving you with only one option, shutting down your business. With the little time you have left, all you will manage is a garage sale of the inventory, tools, materials, and office equipment you have accumulated to run your business.
Don’t expect to have much to retire on with this default approach.
2. Liquidate your business
But most likely, a liquidated business will bring in a fraction of its true value. Besides, overseeing the demise of your business, would be difficult for most owners.
3. Transfer the business to your children
This is not the good old colonial times. Most children of successful business owners want to go their own ways. Hey, even in the good old colonial times, children moved on to their own adventures. If kids are entrepreneurial, they may want to start their own business. They probably got their independence from you. If they have spouses, the spouse’s career may take precedence and they may prefer to leave the area.
When considering passing the business to a son or daughter, the parent’s motivation must be considered as well as the child’s. A controlling, over-anxious parent creates a tense and an unhappy business environment. You might be afraid to retire because you think your children can’t run the business without you. You might pour your savings into the business, trying to be helpful, but end up supporting bad business decisions, that would have been nipped in the bud, had the kids turned to a bank instead.
4. Transfer your business to your managers
Owners who take this path often finance a large amount of the purchase price. This plan may still be appealing to you if you believe that price is not as important as the continuation of your business and the future wellbeing of your employees.
This is another strategy that may be personally rewarding, but don’t expect to get the full value from the business with this arrangement.
5. Sell your business to a third party
Four identifiable types of outside buyers will value your business differently depending on their view of the opportunity your business presents to them. These buyers are the:
- Intentional buyer This buyer looks to buy businesses with proprietary products or processes to complement and enhance their own offerings.
- Investment Buyer This buyer looks for niche markets, proprietary products, or processes in manufacturing or distribution and needs solid management in place and a reasonable return on investment.
- Income Buyer This buyer will move in to manage the company and is looking for an income more than an investment.
- Industry Buyer This is the outside buyer of last resort since adding customers and sales is the only benefit. They are also aware that they are the last resort and know that the seller is usually coming to them out of desperation.
Selling a business requires reverse engineering. Start at the goal and work backwards to determine the steps required to meet the goal. Without help, figuring this out can be daunting for most owners. That is why most owners postpone the planning and preparation required to leave their businesses in a way that achieves an optimal outcome. When the clock runs out, liquidation or just closing the doors with a quick garage sale, becomes the only option left.
If you are like most owners, you have no experience buying or selling businesses and aren't excited about learning everything that’s necessary to make a successful sale and transition. If that is the case, be sure to enlist the help of advisors to plan your exit. Well in advance of the day you expect to leave your business, arrange to meet with an accountant, your lawyer, financial planner, and a business broker. Then, even if you should need to make an unexpected exit, you will be ready to sell.
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