Most business owners have a great deal of wealth tied up in their business, but the illiquidity of that asset can create issues when it comes time to retire.
To make sure you get the most value out of your business when you are ready to move on, start the planning process now.
"The business has been their livelihood, their lifestyle, their family legacy and they're so used to being in charge of the business that they don't stop to think about how they're ever going to get out," says Kathleen Richardson-Mauro, senior consultant at ROCG Americas and president of Florida Business Connection, Inc. In other words, to make the necessary transition as seamless as possible, requires thoughtful planning ahead of time.
Planning is crucial
Maximizing a company's value doesn't happen overnight. It takes a detailed approach that starts as early as possible. Business owners should begin preparing three to seven years prior to when they plan to retire from the business. "They might have a business plan, but a business plan without an exit plan is an extremely incomplete business plan," Richardson-Mauro says.
Make sure any plan is based on strong fundamentals and includes growth. It may be helpful to seek outside counsel from your accountant to make sure you are being objective. These professionals can also help you look at your business the way a potential buyer might.
"The majority of a business owner's wealth is usually tied up in the business, and it's a very illiquid asset," Richardson-Mauro says. "They have to make it a liquidity event somehow, whether they're going to sell to a management team, sell to their employees through an ESOP or sell to a third party. The main thing is planning."
Create a business that doesn't need you
The problem many business owners run into when looking to sell is that without them, the business would either struggle or have no value. One of the most important things you can do to get a good price for your business is to make sure that it can run just as well with you fully engaged as it does when you not present.
Begin by carefully delegating jobs and responsibilities that you normally would fill. When appropriate, create teams that can assume more and more control over the day-to-day operations of your company. Ultimately, you'll cultivate and develop the personnel who will be able to run your business for you, without you.
"Make sure that the business can function really, really well without you," says Lise Stewart, founder of Galliard Group, a business consulting firm. "You should be able to go on a two- or three-month long holiday without your clients noticing any change in operations. If you can't do that, potential buyers will use the fact that you are a necessary part of the success of that business to both beat you down on price and make it a leveraged buyout."
If you haven't started to build a business capable of running without you, start now.
