As a business owner, I know that I will have to retire someday-no matter how much I hate thinking about it. How will I protect my legacy, convert business value into cash, lower my tax bill and maintain family harmony? These are important questions and, in my experience, business exit planning can help. It involves the collaboration of organizational development experts with your advisors (e.g. legal, financial services, investment banking, tax) to help you plan and execute the sale of your business on your terms.
The buyer of your business may be outsiders (e.g. investor or another company), family members or even key employees. An exit process will help you protect (and maybe improve) the value of your business from the critical time from when you decide it is time to begin planning to when you actually transfer ownership. Hopefully, several years before you need to actually make your exit. A coordinated process ensures that your interests are protected and your objectives are achieved.
As you may already know, you are not alone. The retirement of baby boomer era business owners represents a substantial generational shift within family businesses and the statistics are striking in this area. MassMutual and Raymond Institute (2007) report that although 40.3% business owners intend to retire within 10 years most lack a succession plan for the exit. In another study, Feltham, Feltham and Barnett (2005) report that business owners are not taking steps to reduce this high level of dependence on them by working on the development of family or key successors. Unfortunately, this often leads to failure with only 30% of businesses surviving the second generation and 10% surviving the third generation (Kets de Vries, 1993).
This poor success rate is unfortunate and unnecessary. By starting to plan several years in advance, you have time and options to ensure a successful exit. This gives you time to clarify objectives, address family issues, improve or protect value, address tax planning and, finally, indentify and develop possible successors.
More on Business Exit Planning...
Family Firm Institute. (2005). Facts and perspectives on family business in the US. Facts and figures. Retrieved from http://www.ffi.org/user_files/images/rud/2005_fb_us_world.pdf
Feltham, T. S., Feltham, G., & Barnett, J. J. (2005). The dependence of family businesses on a single decision-maker. Journal of Small Business Management, 43(1), 1-15. doi:10.1111/j.1540-627X.2004.00122.x
MassMutual Financial Group/Raymond Institute (2007). American family business survey. Retrieved December 25, 2009. Available at http://www.massmutual.com/mmfg/pdf/afbs.pdf
Kets de Vries, M.F.R. (1993). The dynamics of family controlled firms: The good and the bad news. Organizational Dynamics, 21(3), 59-71.