Small Business Articles from Make-it-Fly®
Pays to Think About the End When You Start
By Victoria Munro
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
your brand presence in the marketplace
your operations manual, putting systems in place
that will enable someone else to step in and run
your books in good order, showing accurate, clear
and consistent records
up your client lists, your reputation and your networks
care of intellectual property: trademarks, patents,
with any outstanding tax issues
a good first impression – the business should
look clean, businesslike and attractive to anyone
that your legal paperwork is in order
a business plan that projects into the future
a realistic picture of the *value of your company,
noting specific actions you could take to increase
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.
for printable version.
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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