Building your business exit strategy: 5 questions to ask yourself

There is no single best way to leave your business — but when the time comes, you’ll want to be sure it happens according to your wishes. Business succession often comes with complex legal, financial, and interpersonal implications. Allowing ample time to work through these can help ensure a favorable outcome.

Consider these questions to start the business exit planning process on solid footing.

Are you hoping the sale of your business will fund your retirement? Do you want to keep the company in the family?  If you keep it in the family who will run it? Even if you’re not sure now, understanding your options can help you think through what the best course of action may be. There may be choices you haven’t considered, such as transferring the business to staff through an employee stock ownership program (ESOP). That can allow for a gradual transition and strengthen retention and motivation among team members. Your tax advisor and your attorney can help you weigh the financial and legal considerations of each succession option.

Knowing this figure is a critical starting point to exit planning. If you intend to sell, knowing the business’s current market value can prompt you to plan steps to increase it. If you want to transfer the business to a family member, the knowledge can help you begin creating a strategy to reduce the tax burden for you and your successor. Look for a certified appraiser who has experience with your type of company and industry. The American Society of Appraisers and the National Association of Certified Valuers and Analysts both have online directories that you can search by location and area of expertise.

Many entrepreneurs have the bulk of their net worth tied up in their business and neglect investing in traditional retirement plans such as 401(k)s and IRAs. Because of this, it’s important to have a realistic sense of both your business’s value and how much you’ll need to live during retirement. Surveys show that many people underestimate these numbers.

Having an accurate account of your current expenses and income can help. Of course, some of these expenses will change over time, but the exercise can still be a powerful reality check. It will also prepare you for a conversation with your financial advisor on how to best prepare for retirement.

Not all business exit strategies require letting go of the reins completely. You may be able to structure a transition or sale in a way that lets you keep a hand in the company’s operations and continue to earn income from it. For example, you could sell a stake in the business and keep partial ownership. Many buyers prefer to negotiate an arrangement to stay on for a period as an advisor or consultant with incentives to profitably run the company. This can help to smooth the transition to new ownership and ensure continued success for the company.

If you want a more decisive break, you’ll need to be sure that the business can continue without you. Think about how the business functions now in your absence. Can most of the work happen without you? If the answer is no, consider how you’ll transfer your knowledge and skills. That may involve standardizing and writing down processes and procedures that are currently “in your head” so others can more easily perform them.

Even if your business is thriving now, it’s important to consider its long-term prospects. Stay on top of trends and shifts within your industry and target market. Reviewing publications such as Deloitte’s Industry Outlooks can help. Unless you’re planning to shut down your business when you retire, you should be prepared to make adjustments or shift focus in a way that strengthens your company’s long-term viability. That will also put you in a better position to sell, should you choose that path.