A Monthly Column of Information for Small Business
Q: I suspect my children don’t want to take over my business, but I’d like to retire at some point. What should I do?
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Though you spend decades building and running your businesses, you can’t run it forever. You might interest your kids by involving them more, but even then, you have to plan your exit.
Every business owner eventually steps down. Whether it’s retirement or health issues that end your career, whether you cede control to your children or sell, the transition will only be as good as your plans.
Most people can’t achieve a goal without a plan. An exit strategy is a road map to your business exit goals. You might have one of several different exit goals. Common ones involve using the sale of the business to fund retirement, to provide for future generations, to travel, to enjoy more time with family or to reduce stress. Strategic exit plans allow you to maximize the value of your business. Achieving your goals won’t happen overnight. Without a road map you might not achieve your goals.
Business owners often want to exit quickly because of changed circumstances, often failing health. When life dictates an unprepared exit, it rarely goes smoothly. When you are ready to exit your business, the business may not be ready. Systems must be established so the business runs without you. Value must help to achieve your best selling price. The business must be in good financial health. Exiting your business for the right reasons and at the right time requires planning.
Having an exit strategy doesn’t mean you exit today. It means that you know what your exit will look like. Design your business with exit goals in mind. Your long-term business plans should always be measured against the eventual exit plan. Then you’ll be prepared whenever you decide to exit.
Since a business is usually the largest element in an estate, many business owners to plan that its will fund their retirement. The sale price, however, seldom equals the business value. Business values are established for many reasons. The mathematical value of the business isn’t wrong; it is probably accurate. Your problem is you cannot sell your business for that value. Many factors affect the sale price. Owner involvement is one example. If the owner is integral to the success of the business, the new owner will basically be buying a job. If the business runs itself without the owner, it will be more valuable to a buyer. Business owners should understand the market value of their business so they can act to increase that value if necessary.
It’s never too early to outline your long-term business goals. A strategic exit plan gives you the tools to build a comprehensive business road map. You can never be too prepared. Your SCORE mentor can help you prepare. SCORE mentors can give you free advice in many other areas as well.
Don’t let your small size impede you: use it as an asset. Even the smallest business can win. SCORE offers free small business counseling and low cost workshops. Call SCORE today at (831) 621-3735 or visit santacruz.score.org
If you’re on top of your business, you might want to use your experience to become a SCORE mentor. It will increase your satisfaction with life.