To successfully exit a business requires clearly defining your goals and risk tolerance. This is a highly individualistic activity, that a business broker or financial planner may help guide you through. For example, one business owner may be interested in using a business broker to sell their business for the best possible price, for all cash, to an outside party, with no continuing involvement with the business whatsoever. Another business owner may be less concerned about getting top dollar for the business, and instead would prefer to work with their estate planning attorney and CPA to sell the business on a contract to an adult child, while still maintaining an active employment role in the business for a few more years, but enabling a more exact exit timeline that is expected to cause minimal disruption for employees, vendors, customers, and family.
Some of the factors that may impact establishing exit planning goals may include:
- Whether there is a desire to keep the business in the family.
- If you desire to keep the business in the family, are there family members who are both capable managers and interested in being owners?
- If there is a desire to transfer ownership to an adult child, how will this impact family dynamics (i.e. what will be the reaction by another adult child who will not be an owner? what will be the reaction of an adult child who has been actively working in the business for limited compensation if you allow a non-involved adult child to also participate in ownership of the business?)?
- Are there any key employees you would like to reward by selling them the business at a lower price and more generous terms than you may be able to get from selling to a third party?
- The advantages and disadvantages of providing seller-carried financing – whether to an inside buyer or to an outside third party.
- The pros and cons of retaining an equity interest in the business.
- Whether or not it is important to you for employees to be retained by new owners or management.
- Whether or not it is important to you to ensure that clients will be well-served by the business in the future (i.e. would you be OK with a competitor known for poor service acquiring your business if they paid the right price?).
- What do you need financially to consider your business exit to be successful?
- Are you willing to work for the business as an employee if no longer an owner? If so, for how long, under what conditions, and for what compensation?
- Are there plans to donate any of the proceeds from a sale of a business to a charitable cause, and, if so, is there an alternate way to structure a deal that may have greater tax benefits?
- How will future income be impacted by the sale of the business, and are there tax advantages you will enjoy by deferring consideration for the business?
- What will you do with your time after selling the business, and will you be OK with your identity being disconnected from the business you have built?
- Is there a way to time a business exit that will enable you to better meet your financial and personal goals?
Developing a better understanding of your goals and objectives will help you to better assess the appropriateness of different exit planning alternatives.
