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Plan Your Exit From Your Business

Written by: Michael Ian Werner

Reputation Level 11

Business

Posted over 3 years ago. Applies to Pennsylvania, 6 helpful votes, 0 comments

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The Three Options

Sooner or later, everyone wants to retire. Unfortunately, if you own a business, retirement isn’t as easy as giving two weeks notice to the boss. We have seen many family-owned businesses transition from the original owner/entrepreneur into a second phase of existence. In general, these businesses follow one of three basic models: 1) They retain family ownership and management into a second generation; 2) They retain ownership and bring in a manager (or outsource the administration); or 3) They sell the business to an outsider, a key employee or a group of employees.

Planning

The most common reason that any of these transitions may not be successful is due to a lack of planning. For such advanced planning to be effective, the owner must incorporate a Business Plan and a Succession Plan into a traditional Estate Plan. First, the Business Plan provides an opportunity to chart a course for the day-to-day operations of the business. Second, the Succession Plan eases the various generations’ concerns about how and when a successor will be ready to take the reins. Third, the Estate Plan can minimize potential taxes and other expenses. And let’s face it, none of us is in business to pay more taxes. If any one of these elements is missing, the business may not survive the eventual transition.

Conclusion

For as many things that a business owner has to deal with every day, it would be comforting to know that he has planned for the eventuality of leaving the business. The business owner would be wise to begin planning the exit strategy 5-10 years before the planned event, and then if something unexpected occurs, such as an illness, the planning has already been completed. It is prudent to revisit the issue on a regular basis with all of the business owner’s trusted advisers, and yes, even their attorney.