Are you like many business owners?
- A majority of closely held and family
owned businesses will change hands within the next five years1;
but
- Many Business Owners may not have taken
active steps to transition out of ownership.
Again, if you are like many of our readers, the reasons for failing to
plan
may be:
- You may have simply been too busy
working in your business to be working on it — at least until now.
- You may be unsure of how to begin Exit
Planning, who to use or even where to begin. Those uncertainties can
be addressed today.
This issue of The Exit Planning Review™ and every
subsequent issue will encourage you to work on — not in — your
business. Your education about the Exit Planning process begins now.
Proper knowledge and preparation can possibly mean millions of dollars to
you when you ultimately leave your company. Start Exit Planning today and
you can help to avoid the sad (but too common) fate of
T J Construction.
Years ago, I met with Jim and Tim McCoy, two owners of a thriving
construction company. What I assumed would be a business planning meeting,
turned out to be a "We're getting out of business, how do we do
it?" meeting. As successful as they were, they were tired of the
government regulations, changing tax codes and day-to-day grind of running
a multi-million dollar company.
A sale to a third party was not an option because Tim and Jim were
not willing to stay on after a sale — and they had failed to develop a
strong management team, which any savvy purchaser would require as a
condition of purchasing the company. Transferring ownership to a group of
key employees was also out of the question. None had been groomed to take
on this type of responsibility and nothing had been done to fund this type
of buy out.
Both owners were too young to have business active children so their
only option was to liquidate.
Jim and Tim's highly profitable company had little worth beyond the
value of its tangible assets. After the sale of those assets, dozens of
the employees lost jobs, the business disappeared, and Jim and Tim left
millions of dollars on the table.
How can you help to avoid Jim and Tim's fate? By engaging in an Exit
Planning process that you control. An Exit Planning process begins by
asking yourself the questions that follow. Your Exit Plan will begin to be
created as you answer each of the following questions affirmatively:
- Do you know your exact retirement goals
and what it will take —in cash — to reach them?
- Do you know how much your business is
worth today, in cash?
- Do you know the best way to maximize the
income stream generated by your ownership interest?
- Do you know how to sell your business to
a third party and pay the least possible taxes?
- Do you know how to transfer your
business to family members, co-owners, or employees while paying the
least possible taxes and enjoying maximum possible financial gain?
- Do you have a continuity plan for your
business if the unexpected happens to you?
- Do you have a plan to help secure
finances for your family if the unexpected happens to you?
These questions are almost misleadingly simple to ask, but to answer
them affirmatively requires thought and action on your part.
Creating and implementing your Exit Plan may be the most important
business and financial event of your life.
1Winsby, Roger. Axiom Valuation,
2003.
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