For most business owners, exiting their business is a monumental step. Whether the transition involves shifting control of the company to a key employee or group of employees, gifting it to a family member, or stepping aside as it’s recapitalized by an outside firm or a competitor, it’s a pivotal moment. And because a closely held business is often the business owner’s largest asset, and usually not as liquid as other assets, the transition doesn’t happen overnight. In fact, it usually takes years.
The more proactive you can be in preparing for the transition, and the more lead time you can allow, the better your chances of achieving the desired outcome.
Recommended Transition Steps
Evaluate your goals
Put some thought into what you want to accomplish both before and after exiting your business. In addition, take some time to consider who you would most like to see own your business. There’s no certainty that your preferred individual or individuals will be the best choice for assuming control, but the sooner you can start putting thought behind this matter, the better.
Allow for time
Depending on your personal situation and what you need to achieve, the solution that’s recommended might have to be implemented over a number of years — often 3-5 years, but sometimes as many as 7-10.
Get your personal financial plan in order
Evaluate what your current assets and savings plans will generate for you once you are no longer in the business. This will help you evaluate the gap you’ll need your business sale proceeds to fill.
Consider what you will do with your time once you’re no longer running your business
Traveling? Spending time with family? Golfing? Volunteering? A new business venture? For many years, you’ve probably dedicated an overwhelming majority of your time to growing and sustaining your business. Sketching out how you will redirect your time once the business is sold is an important step in the process of exiting.
Perform an informal valuation of your company
Depending on the exit path that works out best for your situation, a formal valuation may be required. But in the meantime, an informal valuation is a relatively painless way to make sure your perceived value of the business and the market’s perception of the value of your business are at least in the same ballpark.
An informal valuation is not labor intensive. It primarily involves gathering financial statements and tax returns from the last few years. Some internal data points will also be needed, such as industry type, employee headcount, years in business, etc. More will be needed should a formal valuation be required, but this is an easy place to start.
Common Mistakes to Avoid
Putting a “For Sale” sign out front, either literal or metaphorical
Work with a trusted adviser to help evaluate your goals and determine your objectives before you tip your hand about exiting. Until you have a solid idea of the path you will most likely travel, it’s best not to let your employees, customers and competitors know your intentions.
Relying too heavily on preconceived notions
You may think you want to transition your business to your key employee or gift it to your children, and hopefully you can make that vision a reality. But until you’ve gone through a thorough evaluation process to help determine the best exit path, it makes sense to remain open to all possibilities.
Going it alone
Deciding to exit your closely held business is a process with a lot of moving parts requiring different areas of expertise. As you move down the path of planning your exit, you’ll need to rely on attorneys, CPAs, bankers, financial planners, investment consultants and insurance advisers.
Talk to your banker about your plans. If you are starting to think about exiting your business, Hancock Whitney can help you assemble the right transition team and ensure you and your business’s best interests are kept at the forefront.
The information, views, opinions, and positions expressed by the author(s), presenter(s) and/or presented in the article are those of the author or individual who made the statement and do not necessarily reflect the policies, views, opinions, and positions of Hancock Whitney Bank. Hancock Whitney Bank makes no representations as to the accuracy, completeness, timeliness, suitability, or validity of any information presented.
This information is general in nature and is provided for educational purposes only. Information provided and statements made should not be relied on or interpreted as accounting, financial planning, investment, legal, or tax advice. Hancock Whitney Bank encourages you to consult a professional for advice applicable to your specific situation.
Hancock Whitney Bank offers investment products and services, which may include asset management accounts, as part of its Wealth Management Services. Hancock Whitney Bank is a wholly owned subsidiary of Hancock Whitney Corporation.
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