By Michael Torney, J.D., CFP®, LL.M., CEPA
Every few years an owner faces a key decision. Do I want to harvest the value of my business or continue to build? For those considering a transition, there are some considerations to keep in mind.
Remember your wealth gap: Your wealth gap is the difference between what you need to fund your lifestyle during retirement and what you own today outside of the value of your business. That number needs to be the amount you receive from the business after-taxes, fees, debts, and other costs of selling a business. This is a very important distinction. You may choose to wait to sell and continue to build, or just maintain, if you cannot meet your wealth gap.
Do you have a plan for after the business? Make sure you have a personal plan for life after the sale. Some exit paths will be a swift transition into retirement, others easing out of work overtime. Without a plan on what to do next, many owners can have regrets about transitioning out of the business. In business, there’s a vision of success; the same can be created for life after the business. Lack of plan can also lead to analysis paralysis for what to do with your proceeds.
Learn about the four exit paths: These are discussed at length in this blog.
At a high level, there are
- sales to insiders;
- sales to family;
- sale to a third party; and
- a sale to an ESOP
There are a variety of reasons why some exit paths will not be appropriate for your business. Those include your timeline, the characteristics of your business, your industry, family considerations, financial considerations, etc. Finally, remember that you have partial sale options – many of the exit paths allow you to complete a partial sale for a longer exit strategy.
Get your advisory team together. Clearly state your goals and things you need to figure out. With your advisory team on the same page, they can work together to help create the best exit process for you. Generally, this includes your CPA, Attorney, Financial Planner, Investment Banker/M&A Advisor.
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