Planning your exit strategy before you retire

Never too early to start planning

There could be any number of reasons for you to leave your business. You might have achieved all your goals and feel like a change of scenery, or you may be facing health problems that will make running a business difficult to impossible in the near future.

Whatever the reason, leaving something you’ve built up and dedicated yourself to is never easy. There’s your employees to consider, commitments to financial partners and even family – not to mention your own business legacy.

Needless to say, you’ll also want to make sure you exit with a nest egg that reflects all the hard work and investment you put in.

To get the most out of your investment in your business, an exit strategy is something you should begin planning pretty much as soon as you can – even if it’s right after the business has been launched. Having an exit strategy firmly in place means things will run smoothly if you have to step down in a hurry.

Selling your business

Someone might make you an offer out of the blue, and although you hadn’t considered selling at this point, the offer’s made you re-evaluate your future. Or you might have put the business on the market, and you’ve got a number of offers on the table. You could also be planning to sell to a family member. Whatever the reason for selling your business, it’s important to have a strategy in place so that you can make the most of the sale.

In some situations, buyers come with conditions that can include an extended hand-over period during which they shadow you to learn every element of the business’s day-to-day running. Don’t confuse this for adequate industry training or a safety net against the business failing under the new owner’s leadership – showing them the ropes won’t turn them into a good fit for your business.

  • Selling to family is a common option if you want the business to be a legacy, but remember if your children, sibling, or close friend have any issues post-sale, they’ll come knocking on your door first. This means doing your due diligence is even more important, to make sure business operations don’t turn into a boomerang and keep landing back at your front door.
  • Selling to employees offers a smoother transition, because they understand what’s involved in the processes and they have an intimate knowledge of the business’s structure.
  • Selling to another business – becoming an acquisition – is a good option to consider if you have a significant market share or strong product that larger companies might covet, you know your market like the back of your hand and you can identify a target, or you’re willing to change or reinvest in your business to make it a more attractive strategic acquisition.

When’s a good time to sell?

Good timing depends largely on what the market’s doing at any given time, but there are some markers to take note of at any time, that can help you decide if your business is ripe for sale:

  • You’re confident of your business’s ROI value.
  • You like the idea of a straightforward sale with less red tape.
  • You want to pass the business on to the next generation.
  • You’re not in a rush.

Step down from day-to-day business

In this instance you’re making the decision that you’re not putting in a 9-5 day anymore – or whatever your working day amounts to. You’ve delegated people to take over your management role as you step down from it. However you may decide to retain some or all of your shares, giving you an ongoing income and some say and control over the business. Merge with another business

This option also means you might be able to take things a bit easier while still retaining some involvement in the business. Merging with another company could offer the opportunity to let others take over the day-to-day business, as mentioned above.

Close down voluntarily

If you don’t have a successor, don’t wish to sell your business, or haven’t been able to find a buyer, closing down voluntarily may be your best option. It’s important to plan a successful closing down strategy so that the transition for yourself and your staff is as smooth as possible.

Summary

A successful exit from business is, like most things, down to planning. And it’s never too early to start – in fact, it’s best to have a strategy in place as soon as possible, because you never know what surprises might be just around the corner. Even if you don’t leave your business due to an unexpected event, it’s still wise to have everything in place so that your exit goes smoothly and you can make the most of it. This is especially true if you’re selling to a family member, because it’s inevitable that you’ll be around to hear how the business is going, even after you’re no longer involved.

It’s essential that your lawyer and your accountant are involved in planning your exit strategy. They’ll make sure nothing is missed, and they’ll also have valuable advice around not just the sale, but how to maximize what you get out of it.

Next steps

  • Arrange a meeting with your lawyer and accountant to discuss your exit strategy.
  • Decide on what terms you want to leave the business, ideally.
  • If you’re handing over to a family member, make sure you have a handover plan in place.
  • Talk to us about investing the cash from selling your business.

© Comerica. For more content like this, please visit smallbusiness.comerica.com