Dear Karen: I'm middle aged and have been told I need an exit strategy for my business. How do I develop one?
Answer: Many business owners count on cashing out of their companies to fund their retirement. An exit strategy is a plan to help you unlock the value of your business when you need it.
Start planning a decade before you intend to retire, said Bill Van Keulen, an accountant and certified financial planner at Carnick & Co. of Colorado Springs, Colo.
"If you're the key person who makes the business run, try to get the company to a place where it can operate smoothly without you," he said. "Groom someone to take over, and set up financial and procedural systems that will help the transition."
Do a legal audit to ensure that you have the proper business structure, and do an informal valuation every few years using the "discounted cash flow" method, Van Keulen said. (You can find free business valuation calculators online.) "The value of the business might not be as much as you thought, but it will give you realistic price expectations and goals to meet," he said.
Involve your management team early on.
"It is no secret that you will not be there forever, so don't pretend it is. Get everyone on the same page regarding company goals," Van Keulen said.
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Size up firm after father's death
Dear Karen: What do family-owned companies do when the father, who controlled the business, dies unexpectedly?
Answer: The sudden death of a parent who firmly held the reins of a company, and left few instructions for the future, can be devastating to the business, said Patrick Smith, vice president of estate and business planning at Hartford Financial Services Group.
"When the business passes on to the children, often they squabble about how the business should be run. I've seen results ranging from a forced buyout to a full-blown court battle, where the business was ultimately dissolved for a value dramatically less than what it was worth when it was a going concern," he said.
Talk to your siblings and sit down together with the company's attorney, accountant and other trusted advisors.
"You need to get a good handle on what the business would be worth if it had to be sold under a forced sale versus a planned-for scenario," Smith said.
Having those figures should help your family reach a consensus on whether to continue operating the firm or sell it for the highest price possible.
