It takes an incredible amount of time and energy to deal with the never ending challenges of running a successful small business. As a result, it's fairly common to lose sight of the fact that there will come a day when it's time to move on. This often ends up with the business run in a way that's effective for the day to day operation, but not geared towards optimizing value in a sale. There are often many changes required to prepare it for a successful transition, so the time to start exit planning is now.
These key questions need to be addressed today for an orderly transition in the future. Financial professionals in particular can perform a great service for their business owner clients by helping them clarify their retirement goals and how the future sale of their business fits into these plans.
1. WHEN DO YOU WANT TO RETIRE?
When are you planning on selling your business? If you aren't actively thinking about this question at the moment, chances are your answer is, "When the right price comes along," or "In a few years." Even the best laid plans can't foresee the curveballs life throws our way via illness, injury, a change in market conditions or even death. In addition to the extensive personal financial planning necessary in advance of the sale, you may have significant changes that need to occur within your business to attract a serious buyer and maximize your value. Common issues we encounter are inventory management concerns, missing or outdated systems & processes, or the lack of key staff in place that can assist the new owner after your departure. These are all matters that can be fixed, however they can take a varying degree of time to address and correct.
2. DO YOU HAVE A SUCCESSION PLAN?
What is your plan to move the money from your corporation to your personal bank account or investment portfolio? Do you have a financial planner and tax attorney working within your trusted circle of advisors to assist you in keeping more money in your pocket after the sale? Do you have unneeded items within your corporation such as real estate, personal investments or shareholder loans that require your attention? If you want to create a wealth preservation vehicle such as a family trust, this may take you up to two years of planning before you'll even be able to entertain the thought of selling your business. Are you going to sell to family, a trusted employee, a competitor or a budding entrepreneur? Your plan needs to reflect the choice of who you disperse your business to.
3. DO YOU KNOW WHAT YOUR BUSINESS IS WORTH?
We rarely meet a business owner that has a concrete answer to this question. The truth is that the market will ultimately decide and the value is largely governed by cash flow. An ill-informed expectation of value will waste time and cause frustration as you watch buyer after buyer move on to more reasonable options. Getting a certified business valuation completed now will help you gauge where things are at so you can be advised on how to get to where you need to be. You'll learn what your business is doing well and which areas have opportunities for improvement. A certified valuation will help your broker in establishing and justifying the value of your business to a buyer, their accountant and the bank. This will allow you to maximize the value present and minimize the time and stress required to sell.
Regardless of what you've envisioned for succession timing, it's never too early to start planning the successful exit from your business. It's a complex process completed in simple steps by experienced professionals working together to help you accomplish your goals. Let's get started!
Ryan Jorden is the Managing Partner with VR Business Brokers in Calgary, Alberta, where he specializes in valuating and facilitating the sale of privately held businesses. You can reach him confidentially at firstname.lastname@example.org or visit our website to learn more. We can also connect on Twitter and Google+.