Exit Strategies: Plan Early and Often Begin Your Retirement Planning Now
Most entrepreneurs starting a business usually don't place "Develop an exit strategy" high on their priority list. Most business owners nearing retirement wish they had.
That's Lesson #1 from business and estate planning professionals: Consider your exit strategy from the very start, before you even open your business, in fact. Having an end in mind (and a timetable) can affect how you structure your business, which can have tremendous tax and inheritance consequences down the road.
Yet those same professionals also know they're fighting an uphill battle. They cite three main reasons business owners put off planning for tomorrow until well, tomorrow:
1) Procrastination. Most new businesses owners work long hours learning the ropes and doing everything they can to keep their new baby growing during its critical early years. Formulating an exit strategy and developing a succession plan are easily pushed aside "till later" by the everyday demands of business survival.
2) Denial. An unwillingness to confront one's own mortality or decline definitely plays a large role. Why face unpleasant realities when you can focus instead on growth and expansion?
3) Attachment. A person's identity, particularly a founder's, can become wrapped up in their business. For many entrepreneurs, it's difficult to realize there comes a time to let go — and that they will have a life afterward.
There are four basic ways to leave a business:
- to heirs or family
- to a key employee or team
- to an outsider
- to no one, by shutting it down.
Each of these options is made easier by having an exit strategy in place long before the time comes to leave. And each has its own set of choices and complications. Before proceeding to the details of each, a few general tips:
- Gather a team of trusted specialists and advisors to help you navigate toward your long-term goals. At a minimum, this team should include the following professionals: an estate planner, a financial and/or investment advisor, an attorney (preferably with expertise in business, franchising, and estate planning), and an accountant or CPA. Also build an informal board of advisors, which could include family, friends, business associates, fellow franchisees, mentors, and your own management team.
- Run your business as if a buyer is arriving in the next hour. Maintain careful records that can be read and understood by prospective buyers (not just by the 83-year-old bookkeeper you've employed for the past 47 years). It's a lot like cleaning your house before company arrives — even if that visit is decades away, surprises happen. Keep good records and run a tight ship.
- Find professional help. Plenty of planning professionals specialize in franchising and its unique legal and financial issues. For instance, as a way to protect their brand identity, franchisors usually maintain a right of first refusal on any potential sale of a franchise unit. And if your franchisor doesn't already do so, ask them to provide sessions on retirement and transition planning, either at franchisee meetings or as a part of regional training. Franchisors have a strong interest in maintaining the good health of your unit(s) as part of the overall system, and seeing that this success continues after your departure from the business.
15.4: Making It Work
15.6: 4 Roads To Letting Go