Why does planning for a successful transition matter?
Updated: Jul 26, 2022
You have spent decades building your business. Most of your personal wealth is tied to your business. You feel personal pride when you think of your business.
There are many reasons why business owners realize that they are getting closer to transitioning out of their business. The reasons might be medical, or you feel that the time for the transition is approaching. With that realization, a lot of unanswered questions are waiting to be answered.
When you built your business, you planned a lot. You designed your next day, and you thought about how you get the next large project or customer account. You thought about your business at the weekends or at night when you couldn’t sleep. Thinking and planning about running your business was easy because it is what you do.
Now you realize that you need to either transition the business to the next generation, or you think that you want to sell it to either a key employee or a third party. With this realization, many questions are being generated. These questions are different and challenging. For many of these questions, you might not know where to go and look to find the answers.
Exit Planning or Transition Planning focuses on the owner’s journey to the next chapter in their life. The chapter where you no longer are the owner of your business. For some owners, this might be retirement. Transition Planning starts with determining what questions you have and what things you already know. Then, developing and executing a plan on what needs to be done to increase the chances for a successful transition.
The Exit Planning Institute knows that not every business that goes to market will sell. But the chances for well-prepared and well-priced business are much higher.
Here is the first question that needs to be answered:
How Much Money Do You Need?
Many business owners do not know how much money they need to retire. When you are working, you are being paid by your business, and the profits are the bonus for your hard work. Now you need to start thinking about what you want to do in retirement.
Part of exit planning is developing a financial plan for the owner after they retire. At that moment, the wealth that you created needs to be available to support the lifestyle you want without you having to go to work. Financial security is essential after spending most of your life building your business. This part of the exit plan can be determined by your financial advisor.
When answering the question about how much you need, we must find out what your business is worth. Then you know if you are ready for the next step or if you need to consider working another year to grow your business. On the other hand, you might find out that you could have sold several years ago.
We need to review what exit options you have. Who can you sell the business to? How long will it take to sell your business? What will the deal structure most likely look like? The answers to these and many more questions need to be documented in your exit plan.
The information contained in this article is general in nature. This article is not intended to give legal, tax, or financial advice. Exit Planning requires the advice of multiple disciplines and advisors. These advisors include, but are not limited to, your attorney, CPA, and financial advisor.
Exit Planning works better if one person guides you through the process and then suggests to you what other specialty advisors need to be included and when.
Any examples in this article are hypothetical in nature.