Most small business owners are more focused on what they will do next week to keep their business running, as opposed to how they will exit the business twenty years from now. Believe it or not, the time to start thinking about your exit is right now. There are a handful of ways to move on from your business and all of them require you to take steps now to ensure it is done correctly. The primary goals we seek to achieve are maximizing your financial gain upon exit, and minimizing the impact on the business’ operations and success.
Strategy One: The instant exit. Perhaps the most challenging, but ironically most common, strategy for succession planning is to plan to simply sell your business on the open market at some point and hope for the best. This strategy creates two issues. First, it creates incredible stress for employees who now wonder whether they will have a job following the sale, or puts you in the precarious position of having to keep the sale a secret. Second, it creates a high likelihood that customers will leave following the sale because the first rule of sales is that people tend to buy from people they like and trust. Products and prices matter, but the immediate exit of a key player (the owner) almost always results in a drop-off in sales under new management for small businesses. In addition, employees exit the business out of anger, fear, distrust, etc. which can further impact your customers and the overall company’s sustainability and profitability which ultimately can affect the value of your business.
To make the best of this strategy, you want to be take care in several areas to get it right. First, keep exceptionally clean books and records and report all of your income, especially in a cash business. If you are doing your own books, hiring an outside bookkeeping/accounting firm to give you that second set of eyes to clean up your books can be quite helpful. In addition to breaking the law, failing to report income will make it difficult to justify the purchase price you feel you deserve upon selling your business because the company financials just won’t back it up. Any tax savings you enjoy now are not only illegal but will result in a lower price for your business later. Secondly, use a business broker to ensure that you are getting fair market value. Business brokers can help you to properly price your business, and can also work with you to “spruce up” your business to get it ready for sale much the way a real estate broker can give you a punch-list of items to get your home ready to sell. Finally, be available for a period of at least 90 days following the sale to help with transition. This could even be extended to two years (while earning a salary for doing so). Handling introductions to employees, even going on sales calls to introduce the new owner to customers, can go a long way to smoothing the waters and ensuring the business survives the transition. This is especially important if the deal is seller financed. Hiring a coach/consultant can also be beneficial in smoothing the waters during this period of transition. The culture of an organization is in a state of flux during this time. It is imperative that people in the organization focus on the customers. This leaves little time for new ownership to focus on the development and maintenance of the culture in the company. Hiring outside talent can be quite helpful to the previous and current owners as well as the employees. Focused training and development can help retain customers, employees and ease transition.
Jim Voigt, Attorney at Lavelle Law
Mary Erlain, Coach/Consultant at Peak Development Strategies
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