Gracefully exiting your business requires aligning personal financial goals with business strategy — before it’s time to leave. Knowing the seven succession options can help you get started.
As a business owner, you’re likely too busy taking care of day-to-day operations and planning how to grow your company to spend a lot of time looking at possible exit strategies. As a result, you may find it hard to see how closely decisions about succession planning are intertwined with considerations about current strategy and personal wealth planning. Yet your business probably makes up the lion’s share of your personal net worth, and the steps you take now to secure the financing you need to grow and build its value could help ensure that you can fund your retirement and other personal financial goals later on. This means that thinking about how you’ll ultimately leave the business may influence current plans.
If you’re thinking about selling the business now or later, any potential buyer will want to know that your current results are sustainable, repeatable and accurate. In addition, creditworthiness matters: Many of the succession options available to you require some amount of debt financing that will rely on the ability of your company to repay. All the actions your company might take to maintain access to debt financing are likely to be the same steps that would increase its value for a sale, says Brian Roth, National Executive, ESOP Finance and Advisory at Bank of America.
“In thinking about how the business strategy for your company and your own wealth planning may align with succession planning, keep in mind that there are really only seven ways to depart a business,” Roth says. You could sell to a competitor or another strategic buyer in your industry; to a financial buyer such as a private equity firm; to your management team; to a family member; to your employees through an employee stock ownership plan (ESOP); or to investors through an initial public offering (IPO). You could also simply shutter the business.
Some of those may not be available to your company, narrowing your choices. But before you start eliminating possible options, it makes sense to consider what you want the future of the business to be. “What are your priorities?” asks Roth. “How important is it for you to maintain influence over your business, even after you’ve pulled back from everyday involvement?” While the need to monetize your ownership interest in the business and any efforts to account for potential taxes incurred by a sale — and other considerations — may also affect your plans, it’s important to integrate those goals into your long-term strategic plans for your business. This would also include your desire to safeguard your employees and to see the business continue to operate.
¡Whatever route you choose, you’ll need a team of experienced legal, accounting and financial experts, as well as bank relationship managers and wealth strategists, to help you plan and implement your ultimate departure from your business as well as your personal financial future.
