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Creating a Successful Exit Roadmap for Your Business — Q&A

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Selling your business is one of the most significant financial decisions you’ll ever make. Maybe you’re getting ready to retire completely, scale back and continue working in your business after you sell it, or want a career change. Business owners are often surprisingly ill-prepared for this major milestone. In fact, two-thirds of business owners of privately held businesses feel that they aren’t familiar with all of their exit options.1

 

No two businesses or business owners are the same, so taking enough time to develop a well-designed plan that maximizes the value of your business and recognizes your unique needs is important. Here are some questions to keep in mind, with advice for a smooth transition: 

 

 

When do you want to sell?

The sooner you start preparing, the more control you’ll have over the process of successfully exiting – so start planning early. The process could be complicated and time-consuming, so it’s vital to understand the range of available exit options as soon as possible. The ideal time would be several years before you want to leave the business. For example, to ensure a smooth transition of a family business to the next generation, it’s critical to have a documented succession plan in place. And naturally, ask your heirs how they feel about it, so you can line up a willing, enthusiastic candidate whom you could gradually integrate into the business.

Will you be selling part or all of your business?

Owners whose goal is retirement typically want to sell their entire business. Others may prefer to sell only a portion of their company for liquidity or estate planning purposes, but still want to own a significant stake in the business and continue running the company. Think through the potential scenarios that could work with your vision.

What’s the buyer pool best suited to your business?

You may be considering selling to an internal buyer, such as a current employee or a partner, or selling or gifting to a family member. Potential external buyers could include a third party, who could be a private equity firm, or a strategic buyer, such as a competitor operating in a comparable area. Other alternatives include fragmenting the organization into smaller businesses, minority sales and recapitalizations, options that let you retain partial ownership or management control, initial public offerings (IPOs), and employee stock ownership plans (ESOPs). Liquidating the company entirely is another possibility. If you’re hoping to earn the most, consider as many possibilities as you can. 

Do you have any idea what it’s worth?

Well before you plan to sell your business, you should get an independent third party who is experienced in business valuations to conduct an objective appraisal of the value of your business. That way, there won’t be any surprises when you’re ready to sell. Business owners run the risk of valuing their businesses incorrectly, which can derail their dreams for retirement. 

Do you have the professional expertise you need?

Working with a financial representative who can help you assemble a skilled team to handle the many aspects of the selling process is invaluable. This team may include an attorney, a banker, a CPA, an exit-planning specialist, and a business valuation firm. They can advise you on issues such as business continuation agreements, business valuation, capital and liquidity requirements, estate planning, funding sale of the business, life or disability income insurance, negotiating contracts, setting up trusts, and tax planning.

Part of this guidance will help you to minimize the risks of selling your company for too little, paying too much in capital gains, estate and income taxes, or losing control over the entire exit process. They can assist you by designing strategies to transfer ownership so that you may be able to defer or minimize the taxes resulting from the sale. You don’t want to stick yourself, or your successor, with tax bills that nobody anticipated, and gifting options could enable the process to take place with more control.

12013 “State of Owner Readiness” survey, sponsored by the Exit Planning Institute, PNC Bank, Grant Thornton, and the Ohio Employee Ownership Center at Kent State University.

Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.