Key Takeaways:
Clearly state your long-term leaving and post-sale targets.
See valuation experts to learn market value for your company.
Target either internal candidates, private equity, or strategic purchasers.
Create a Transition Plan detailing the phases and deadlines for hand-off of ownership.
Use proactive tax planning to maximize sales proceeds and hence minimize tax liability.
Will you be selling your company? A comprehensive business exit strategy is crucial for maximizing your outcome. Exit planning should be top of mind for all successful business owners, but it’s often overlooked by many entrepreneurs.
Even if you don’t currently have plans to sell your business, the exit planning process should begin sooner rather than later. Starting early allows you to work with your management team to maximize your business’s value. Compare that to reaching retirement age, deciding you want to sell, and then being forced to take whatever deal you can find. The difference could be millions of dollars.
Every business owner will eventually exit their ownership position. Proactive steps, such as conducting due diligence, developing a contingency plan, and incorporating estate planning to manage estate taxes, can make a huge difference in the outcome. Let’s explore common exit strategies and provide practical tips for business owners to start preparing today for a successful business exit.
An exit plan is a tactic used by an owner to give up control of their company. From selling to a third party, passing ownership to family members and/or staff, or liquidating the company’s assets, there are various ways one may accomplish this.
One further names for exit planning are succession planning. Whatever method you choose to leave your own company, a successful result depends on a deliberate, thoughtful approach with lots of preparation.
For most business owners, the sale of their business is the biggest transaction of their lives. If you’ve been successful, the sale of your business will significantly outweigh the sale of any house or vehicle, potentially setting your family up for generations to come. Not only will planning well for your departure improve the business value when selling your company, but it also helps to reduce the possible taxes you could be liable for.
Many company owners have an emotional connection to their company outside of these financial considerations. You likely have employees who have worked for you for years that you want to see looked after. You might have years-long relationships with customers and care deeply about how they will be supported on an ongoing basis.
Ensuring a smooth transition for all stakeholders involved, while maximizing the financial rewards you receive for your years of hard work, demands a comprehensive exit planning process.
Here are some key steps to consider when creating an exit plan for your business:
Clarifying your long-term objectives helps you to develop an exit strategy. Choose if you wish to sell to key people, to family, or for the best price. Review your post-sale plans—that of launching a new business or retiring—and evaluate the money required to enable your preferred way of life. This clarity will direct your exit plan.
The state of the market defines the value of your company. See experts in valuation to ascertain its market value and pinpoint problems needing work. Improving bookkeeping or revenue diversification will help your business valuation be better, therefore guaranteeing the highest potential return.
Identify potential buyers based on your business’s nature and your goals. This might include strategic buyers, private equity firms, or internal candidates like employees or family members. Advisors with industry connections can help find the right buyers, leveraging their networks for the best match.
Create a comprehensive transition plan once you have a buyer. Setting a schedule and organizing knowledge transfer will help to guarantee a seamless transition. Often related to performance criteria in the selling agreement, you could have to stay temporarily to preserve continuity.
Sales of your company could cause a big tax load. For best tax efficiency, arrange the transaction with a tax professional using proactive tax planning. Use tax incentives and techniques to reduce your tax load so you can keep as much of the sale money as you might possibly want.
Every situation is unique, which is why it’s so important you find an experienced tax advisor you can trust.
When it comes to exiting a business, consider these five strategies:
Remember, there isn’t a one-size-fits-all solution for exiting your business. The best option depends on your specific situation and goals. Consider factors such as financial implications, continuity, and your personal vision for the future of your business.
All business owners, including those without any intentions to sell anytime soon, should give exiting planning great priority. Ahead of time planning will help you to reach your financial targets and leave a legacy for your staff and clients.
For more than forty years, we at LBMC have been counseling family businesses and entrepreneurs in Tennessee, Kentucky, and Indiana. Our team is committed to assist you reach a life-changing exit for yourself and your family and has great knowledge in exit preparation procedures.
LBMC is suited to help you at every stage of the exit preparation process with its extensive spectrum of advising, tax, and business valuation services.
Are you game to start? Complete our contact form now to arrange to meet with an advisor and start your effective company departure.
