With the arrival of a new year, most people make resolutions of health, growth and prosperity. Here’s a resolution some business owners may be making for 2014… “I aspire to retire”. But how does an owner “get-out” of the business?
There is an abundance of information available to an entrepreneur to aid in the start-up and operation of a business.
However, what is not so easy to find for the owner of a business is guidance on how to divest of the business – whether selling and moving onto something else, or truly retiring.
Divest. That’s easy. Pick a price and sell it.
Or the owner could establish the value the business to attain the fair market value of its assets, establish the transfer value of the business to the kids, or determine a price based on forecasted profitability.
If the business owner recognizes the opportunities the decision to divest presents, then “getting-out” becomes a planning process and not the managing of a one-time event. This often is referred to as succession planning, and approaching the sale of one’s business in this fashion should result in a more seamless and likely more profitable outcome because the bigger picture is considered rather than the sale viewed in isolation.
Identifying and evaluating the divesting options is the first step in succession planning. Will it be a family transition, an employee buy-in, a third party buy-out, or simply the selling of the assets? Look at the pros and cons of each of these and rank by preference, remembering there are “what if” scenarios to consider such as, “What if I sell to family and it bombs – what’s the fall-out?” This stage is all about the intangibles to the process.
Once the choice is made, then it’s time to apply business valuation techniques – a topic deserving its own attention. Suffice it to say that this is the quantitative side of the process. Hard numbers will fall out of these facts and figures. After this, there are the legal and tax considerations. This part of the process might best be handled by professionals or at least consulted before firm decisions are made. As usual, a lot rides on the numbers.
Then it’s a matter of implementing the mechanics of the divesture through negotiations and agreements, all with an eye to due diligence. And don’t assume a family sale is exempt from due diligence by both parties. The implications associated with skipping it can be devastating.
Finally, it’s not just a matter of getting out, but sometimes it’s also a matter of staying out. This can be an issue for the former business owner not only with a family transfer of the business where ties may be strong, but also with a third party sale since there can be an offer – even a requirement – for the owner to stay directly connected to the business. Be prepared to face this situation.
Finally, and at the risk of being repetitive, succession planning for one’s business venture shouldn’t be taken lightly given the blood, sweat and tears put in. It’s as important as the decision and planning to go into business.
Ron Clarke has his MBA and is a business owner in Trail, providing accounting and tax services.