Planning a future for your legacy
As a business owner, you've put your blood, sweat, and tears into building your company from the ground up. You want to do everything you can to protect your business not only in the present but also for the future. This is your guide to why you need an exit plan no matter what stage your business is in.
What is exit planning?
At some point, every business owner will leave their business.
A legacy or succession plan is one that prepares for the owner to eventually exit the business in one way or another. It answers all the business questions including financial, legal, and personal that are involved in the transitioning of ownership.
A Chief Financial Officer (CFO) or financial consultant can help not only ensure your company's financials are in order and that you have a comprehensive exit strategy in place. Typically, they will work with your existing team such as a CPA, attorney, and other planning partners to implement the plan.
Why does your business need an exit strategy?
Even if you plan on never leaving your business, you still need an exit strategy. It's important to always prepare for the unexpected and plan to meet your financial goals. Owners leave their businesses for a number of reasons, some of them are voluntary while others are involuntary.
Common reasons for leaving a business
- Pass your business on to the next generation
- Sell your business or its assets
- Merge with another company
- Sell shares to the public
- Death or disability
- Family circumstances such as divorce
No matter the reason, having a plan in place (typically 3-10 years before implemented) is important to securing the optimal terms for transfer of ownership. As with most plans, the key ingredients to a successful exit strategy is time.
Exit strategy benefits
- Ensures that the value of your business is looked after, protected, and even increased
- Allows for a seamless transition when it comes to handing the company over to your successor
- Creates potential income in the event of retirement
- Minimizes tax liability
- Defines a goal and direction for your business
Dangers of not having a solid exit plan
Not having an exit strategy in place, puts your business in grave danger should you ever decide to leave the business or be unexpectedly forced to exit. These are serious risks of not having a plan in place.
- Financial risk - If you plan on running the business until you are no longer able to, more than likely you're financial security is coming from ongoing payment from the business. This means your financial security is dependent on the health of the business. However, this also means that you are subject to risks such as economic downturns. It may be difficult to make the necessary updates and changes to your business to stay competitive.
- Work-life balance - Your business is not just your job but also your hobby. However, if there comes a point when you want to take more time away from the business, then not having a plan in place to be able to do so will make it hard to find the time to fulfill your other goals.
- Lack of a successor - Putting off creating an exit strategy means that you risk becoming unable to run the business without having a successor in place to ensure the smooth transition of business operations.
- Transitional chaos - If you must exit unexpectedly, would your business be in chaos, or would it continue to thrive and transition to new management smoothly? Without a plan in place, it could throw your company into turmoil which could affect the bottom line.
Exit plan strategies
When it comes to the right exit plan strategy, as a business owner, you have several options. A CFO can help you understand which option makes the most sense financially. The right one depends on your vision for your company. Strategies include:
- Pass on to the next generation - This is an option if you want to leave something for generations to come and make sure that the business stays in the family.
- Sell to a current employee - You may have an employee who is interested in buying the business if given the chance. Selling to an employee is advantageous because they already know the established business processes. This will make for a smoother transition.
- Sell to the public - With this option, you sell your business to an interested party who comes from the outside. They can bring in a new perspective and breathe new life into the business.
- Buyout from another business - This means that another business buys out your business. This can be advantageous because they already understand the industry.
Choose the right partner to protect your investment
Many businesses in the growing stages do not need a full-time chief financial officer (CFO). Why pay for what you do not need? However, chances are, you still need supplemental assistance when it comes to protecting the financials of your business. Focused Energy provides fractional CFO services such as exit planning to give you the services you need to protect your business for the future!
Do not leave your investment to chance, contact us today to see how we can help you.