Dave Looper, OMEP’s Business Transition Planning Specialist, guides manufacturing executives through the transition process. His September Transition Planning Breakfast is sold out, but you can reserve a spot for the next session at the bottom of this post.
There are 10,000 baby boomers turning 65 years of age every day for the next 16 years. As a business owner within 7-years of departing your business you should be planning for your eventual exit.
Developing a transition plan provides you the freedom and financial security you have always envisioned. Business transitions are risky and for most business owners – after all, you only transition from a business once.
Family business transitions today, compared with those occurring 10 or 20 years ago, continue to trend downward. Successfully selling your business to an outside buyer can be equally difficult. Unfortunately, many owners run their businesses with the goal of reducing their tax liability instead of using the business to grow personal wealth that enhances business value and marketability. Some business owners can feel trapped by their business due to the lack of wealth development. Other owners cannot picture anyone but themselves running their business, so they won’t consider alternative options.
Approximately one-third of business owners will liquidate their business when they exit. These owners failed to maximize their lifetime investment, in part because they did not understand how to prepare, missing their window of opportunity.
Planning A Successful Transition
Successful business transitions provide you, as the owner, your desired business exit, financial security for yourself and your family, and the opportunity to leave a robust business legacy in your community.
Successful business transitions start with the development of an Exit Strategy Plan. This plan is developed with the talents of a number of highly specialized and skilled professionals working together collaboratively. We help you bring clarity to your ‘head and heart’ desires for your exit, determine if you can afford your exit vision, identify your best transition options, assess how to close any wealth gap, and help prepare for the eventual transition option chosen.
The Exit Strategy Planning process consists of the following elements:
Define Your Exit Vision
What is your vision for life after you exit the business? How do you see yourself transitioning from the business? What are your transition terms? How does your family feel about your transition options? Will you be mentally ready for this life change? How do you prepare for such a transition, and how do you know when you are ready?
Can you afford the lifestyle you envision after exiting the business? Have you generated the personal wealth to sustain your lifestyle or is there a gap? What does the business need to contribute financially to you and your family? What do you want to leave your family and charities in your estate?
Are you familiar with and have you considered all of the potential transition options that will help you reach your transition goals, terms for exiting, and for the business legacy your desire? Based on these options are you confident the people you want to transition the business to will, in fact, be interested in owning the business? What steps can you take to make your business more desirable to others thus increasing your options? Are you aware of the risks and financial implications of the different exit options?
Exit Vision Review
With a more complete understanding intact, is your exit vision actionable and practical? What adjustments in your lifestyle or transition timing may you need to take? What business enhancements are needed to accomplish your exit vision? Do you have enough time or do you need to adjust your time frame?
Do you have a plan for the unexpected, such as your death, disability or incapacitation? If any of these events occur, do you have an income continuation plan for you and your family? Who will run your business and will they stay?
To whom do you want to leave your estate? How do you want to divide it or assign it? Have you taken all the steps possible to minimize your estate’s tax burden? Have you planned for the liquidity (cash) necessary to pay your estate tax liability when it is due?
Business Document Alignment
In order for your plan to be legally executed to meet your desires, your personal and business documents must support each other. Consider: are your estate planning documents, your personal and business property titling, your buy-sell language, insurance policy ownership and beneficiary assignments, business entity structure, and other documents in order? Do they all align to support your exit vision?
Business Value Enhancement
What business improvement actions are needed to better position your company to support your Exit Strategy Plan and close any personal Wealth Gap? Is there enough time? Can you focus your employees to help by providing proper goals and incentives? Which changes can you make that will have the greatest impact on your company’s marketability and value?
If you want to exit your business in the next 7 years, consider creating an Exit Strategy Plan designed to make your transition successful.