What are your options when it’s time to move on?
Most entrepreneurs live for the thrill of building their businesses. We spend our lives creating and building the vision, developing the business, adjusting to market evolution and riding out the company’s storms. But what do you do when it’s time to settle down, retire, or just move on from the day-to-day operational components of your successful business? There are a number of exit and succession strategies that you can consider. Each one requires forethought and planning so the sooner you start planning your exit strategy, the more effective the process will be.
Before you can decide on which one is best for you, should carefully consider your own goals and what you see as a successful outcome for your exit:
- Do you want to see the business live on beyond your tenure?
- Do you want it to pass to family members, partners or key employees?
- Are you ready to just cash out and retire on a sunny tropical island in the Caribbean?
Let’s explore a few of the many options available to you for exit or succession of your business:
- Direct Succession – Succession strategies can take many different forms. As the key entrepreneurial leader in your company, you have probably placed yourself in an integral position and you may not be that easy to replace. If you have carefully planned your exit and succession, you will have already put in to place employee and leadership development plans in your company that account for your desire to eventually exit the leadership role at some point while leaving the company intact. A succession strategy typically involves “passing on” the company to a family member, partner, an employee, a group of partners/employees, while creating the bridge for someone else to successfully assume over your key role in the business. First and foremost, make sure you have your succession plan in place so the company can continue to run effectively without you.
- Selling the Business – This can also take many forms, including hybrids of the succession strategy. A business can be sold to family members, partners or employees, or to a third party. Third-party sales of a company can include selling to “friendly” buyers or even competitors. One thing to consider if you are looking toward selling the company as an exit strategy is to prepare your company to be desirable to outside buyers. The more you can create systems that don’t rely on the skills or talents of particular individuals, the more opportunities you’ll create for selling the company, and at a higher price. Developing turn-key operation strategies will allow for an easy takeover of operations.
- IPOs – While IPOs sound sexy and dramatic, they aren’t the best option for most businesses. In fact, of the millions of businesses in the U.S. alone, only several thousand are public companies. Nonetheless, for certain types of businesses with huge market potential, an IPO can be a massive windfall of cash that allows a business owner to secure their future moving forward. Just as with the sale or acquisition strategy above, it is important to make sure your systems are in place if you ever want to be able to actually walk away from your key-man or key-woman role in the company.
- Just Shut It Down – Sometimes, the best option is simply to wind down the company, cash out, liquidate assets and move on. One strategy for the “walk away” option is to start taking your money out of the company early in larger amounts over time through ever-increasing salaries. Many entrepreneurs have the majority, or even all of their revenue and assets tied up in their business, so getting creating a viable strategy for getting that money out becomes the magic formula.
There are many considerations to whatever option you choose. There are possible tax ramifications to consider, both personally and corporate, in using any of these strategies and getting professional advice is a prerequisite before considering any exit or succession strategy.
The key to success is planning in advance. There is no time like the present to start developing your exit or succession strategy so you can have peace of mind in knowing that you’ll meet your goals and achieve your desired outcomes.