Do you know how you are going to exit your business? You may have a dream of going public, selling to the highest bidder, or retiring and handing over your business legacy to your family.
Big dreams aside, the truth is that 66% of small business owners have no exit strategy for their businesses in the event of their disability, retirement, or death (source).
Given the current economy this statistic isn’t too surprising as small business owners focus their energies on business survival, future growth, and even remaining active in business after retirement.
But a business exit strategy not only means having a plan for the unexpected – including financial hardship, injury, disability and even death – it also means having a plan for the succession or transfer of ownership of your business when it comes time to hang up your hat and retire.
Here are a few things to consider as you plan your business exit strategy:
Develop a Succession Plan
As this article from SCORE explains, there is no one plan that fits all when it comes to developing a succession plan for your business. But following SCORE’s recommended five steps to succession planning (including choosing and training a successor) can help provide some practical direction and deliver the peace of mind that comes from knowing that your life’s achievement is in good hands. You can also read more from the SBA about succession planning for family-owned businesses here.
Don’t forget estate planning and trust terms for your business, this article explains the basics and your trust options as a business owners.
Invest in a Retirement Plan and Insure your Worth
As with career employees, you will want to ensure that you invest in a retirement plan, life insurance and even personal disability insurance – all of which will protect you and your family when it’s time, forcibly or not, to step away from your business.
It’s relatively easy to address retirement planning, because we all hope to get there and, more importantly, want to enjoy it. But life and disability insurance are equally important for the small business owners, because they protect you and your family, should the worst happen. Here are some tips for finding the right plans for you and your business:
a) Finding the Right Retirement Plan – If you are a sole proprietor then you may want to talk to your bank about a setting up an IRA or other retirement solution.
If you have employees, on the other hand, setting up a small business retirement plan for both you and your employees needn’t be that difficult – and also offers a nice tax deduction.
This guide from Business.gov helps employers find the right retirement plans for their small business – scroll down to the Retirement Plans and Pensions section for lots of valuable advice.
b) Disability and Life Insurance Options – While some states require employers to provide partial wage replacement insurance coverage to their eligible employees for non-work related sickness or injury, most businesses opt to provide both disability and life insurance as part of an overall compensation or benefits plan.
Once more, the government provides a wealth of guidance to help you make informed decisions when buying insurance for you and your employees. Check out these Insurance Resources from Business.gov. as well as non-profit resources such as InsureU for Small Business – an association that provides useful advice for all small businesses including sole proprietors and home-based businesses.
The Process of Exiting Your Business
Whether you are selling your business, transferring ownership, seeking retirement, or facing a “forced-exit” such as bankruptcy or liquidation – planning your exit is a big undertaking that has implications on employees, your business structure, its assets, and your tax obligation.
Before you embark on executing your exit strategy, be sure to engage your lawyer and even a business evaluation expert. Then follow the expert advice offered by the SBA in its “Getting Out” guide for small business owners which covers the entire ins and outs of getting out, selling up, transferring ownership as well as bankruptcy options.
- Small Business Insurance: Protect Your Business with the Proper Coverage – Check out this quick guide for a better understanding of business insurance requirements.
- Transferring Business Ownership – Business owners have several options when it comes to transferring ownership rights. Be sure to consider all your options before making any decisions.
- How Much is My Business Worth? – Provides a brief overview of common evaluation methods.
- Business Valuation 101: The Five Myths of Valuing a Private Business (SCORE)
- Selling a Small Business – 12 Crucial Steps (SCORE)
- Should Your Small Business Go Public? Consider the Benefits and Risks of Becoming a Publicly Traded …