You’re a family or small business owner. You’ve reached a point in your life where you are beginning to think about retiring. Or maybe you’re not quite ready to retire but still want to spend less time with your business. If this is you, then now is the time to start planning your business exit strategy.
Most family and small business owners do not realize they have only a 30% chance of successfully handing over their business to a new business owner. For family businesses, the failure rate is even higher when the third or later generations attempt to take over.
There are many reasons why so many family and small businesses never realize their founders’ dreams. The biggest reason is that the business owner has delayed planning for a successful transition until it is too late to make the changes needed to realize the full—and in some cases, any—value of their business. The secondary reason is that, even if they have started transition planning early enough, they haven’t addressed all nine factors necessary to ensure a successful transition to the next generation or owner.
How to Bullet-Proof Your Exit Plan
In this article, you will understand the potential costs of not developing a comprehensive transition plan. You will also know the nine critical steps you must take to ensure a successful exit when you retire. In the following articles in this series, we’ll cover how to:
- Start your transition planning with adequate time to implement a successful transition;
- Know what decisions have to be made and when to make them;
- Identify and select the key advisors your business requires for a successful transition;
- Ensure your transition plan addresses all the areas and actions required;
- Understand the roles of and select the advisory team you will need; and
- Know how and when to successfully implement your transition.
Nine Elements of a Successful Transition Plan
The ultimate value of your business legacy—especially the wealth you have created by the time you’re ready to retire—is critically dependent on nine factors. You must plan for these nine critical components to successfully retire from your business, whether you turn it over to the next generation or to your employees, or you sell it outright. These nine critical factors and their relationships are shown graphically as follows:
All nine components result from the choices you make during your retirement planning and the advisors you’ve chosen to work with you. They include:
- Now What?: What you’ve chosen to do with your life after you’ve left your business in the hands of its new leader
- Transition Choices: The choices you’ve made about your business: turn it over to the next generation, sell it, or liquidate it
- Wealth Assurance: How effectively you have created and grown the value of the business and the wealth you have generated
- Protective Shield: The protective (legal and tax) shields you have put in place through good investment and estate planning to protect and enhance the value you’ve created
- Succession Planning: The succession plan you have put in place—who will next manage the business. For intergenerational businesses, how effectively you’ve managed the dynamics within your family as you plan your succession
- Successor Preparation: The steps you’ve taken in the grooming of the next business owner to successfully assume the leadership of the business
- Business Sustainability: The ability of the business to sustain revenue and profits after you’ve made that transition
- Exit Plan: The exit plan itself—the specific steps you’ll take, and when, to transition the business to the next generation or owner
- Implementation: The effective implementation of your transition/exit plan
The ultimate value of your business legacy—especially the wealth you have created through your business at the time of your leadership transition—is critically dependent on these nine factors and on the advisors you’ve selected to work with you. In the next few articles, we’ll visit each of these factors in depth.
So, what is the ideal time to exit your business? It’s when you have a comprehensive exit plan that can assure a successful exit!
Have you begun to think about retiring from your business?
How ready are you to take the next step? If you’re not sure, then take our Business Retirement Readiness™ survey. It will take you less than 5 minutes, and you’ll receive a written assessment of how ready you are. Interested? Just click this link to take the survey. And there’s no further obligation!
If you’re not ready to retire, but just want to spend less time in your business, answer as though you’re planning your retirement—the actions you’ll need to take are the same! Click this link to take the survey.