Small Business Articles from Make-it-Fly®
With the End in Mind
By Victoria Munro
Most small-business owners
don’t think about an exit strategy until it’s
too late. As a result, most small businesses
don’t have happy endings. When you start
a business, it’s wise to have the end you want
clearly in mind. How you plan to leave your business
will affect both how you set it up and how you manage
it on a daily basis.
Too often, owners don’t address this issue until
circumstances such as ill health, death, divorce or
the dissolution of a partnership force them to consider
it. Bill Frank had invested time, energy and money into
his storage business and worked hard in it for over
17 years. He had never taken the time to think about
an exit strategy until he became ill and needed to retire.
Bill ended up liquidating the business and netting very
little for his years of hard work. If he’d made
plans earlier, he could probably have sold the business
and retired comfortably.
If you intend to build up a business for your retirement
nest egg, start thinking about it several years before
and plan accordingly. Even if you’re 30 years
old and in tiptop health, considering
now how you intend to recoup the money you’ve
invested in the business makes good sense.
Possible Ways to Leave a Business
Selling a business
requires building something that someone will want to
buy. Make sure that the business isn’t too dependent
on you to be there every day running it.
Selling or passing it on to
family members can be tricky and frequently results
in family dissension, therefore very careful planning
is needed. Be sure they not only want to run
the business, but also have the qualifications, aptitude
and skills to do so
There are tax advantages in selling
to your employees in an ESOP (Employee Stock
Ownership Plan), but this can be expensive to set up,
and works best for companies with 100 or more employees.
Selling to a manager or to several managers has worked
well for some. Plan for a smooth transition and continued
success by gradually handing off more leadership and
responsibility as you phase yourself out.
You can liquidate the business
– just walk away. This often happens when
someone hasn’t planned an exit strategy and is
faced with an unexpected need to leave the business.
You can sell the saleable assets, but remember that
the proceeds will first go to pay any creditors.
Find a larger company that
will benefit from acquiring yours. This might
expand their market by increasing their product line,
or provide software or systems that would have taken
significant time and money to develop. If you choose
this route, you may be required to sign a non-compete
Ten Things You Can do Now
to Build Value into Your Business
||Establish your brand presence in the marketplace
||Develop your operations manual, putting systems in place that will enable someone else to step in and run the business
||Keep your books in good order, showing accurate, clear and consistent records
||Build up your client lists, your reputation and your networks
||Take care of intellectual property: trademarks, patents, etc.
||Deal with any outstanding tax issues
||Give a good first impression—the
business should look clean, businesslike and attractive
to anyone visiting
||Ensure that your legal paperwork is in order
||Write a business plan that projects into the future
||Obtain a realistic picture of the *value of your company, noting specific actions you could take to increase its value
Set time aside soon to think
about your future and the future of your business.
What plans will you need to put in place? What will
you do next? If your plan is to retire, sail off into
the sunset and buy your dream home on the ocean, you
need to start planning your exit strategy and put plans
in place now!
*Determining the value of a business will depend on
several things, including company assets, such as inventory
and equipment, the price other businesses in that industry
have recently sold for and net profits the business
is showing. You can hire a business-valuation expert
or a business broker to help.
© 2005-2007 Victoria Munro.
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About the Author: Victoria Munro is
co-founder (along with husband Dave Block) of Make-it-Fly® LLC, a company dedicated to creating success for
small-business owners through creatively designed programs
and tools. Victoria has started and run nine different
businesses. To receive FREE business success articles
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