Tehachapi's Online Community News & Entertainment Guide

Does your business have an exit strategy?

Financial Focus

If you're a business owner, you've got so much to think about, and you work so hard, that it might be difficult to envision the day when you're in a different place in life. However, that day will likely arrive, so you'll want to be prepared for it, which means you'll need an exit strategy. But how do you create one?

Here are some steps that can prove helpful:

Start planning early. Making a quick exit is probably not a viable strategy for most business owners. Instead, you'll want to plan far ahead for when you want to leave your business behind. This will require some thinking about the big picture: What will the company look like when you're gone? Are you essential to its survival? If not, do you want to sell it to a key employee or an outsider? Or would you prefer to keep it in the family? After you've answered these types of questions, you can then move on to consider specific solutions, such as creating a buy-sell agreement with an employee or gradually transferring the business to family members.

Determine how to fill a retirement income gap. You could spend two, or even three, decades in retirement – so you'll want to be sure you'll have an adequate income stream to cover all those years. You may be able to draw on Social Security and whatever retirement plan you might have established, such as an SEP-IRA or an owner-only 401(k), but these sources may still leave you short of what you'll need to live on during your retirement. However, your business will probably be your biggest asset, especially if you own some real estate connected with your operations. So, if you're planning to sell your business, how much will you need to get for it to fill any retirement income gap you may face? Of course, it can be somewhat tricky to place a valuation on a business that may not be sold for several years, but with some research and the right forecasting tools, you should be able to develop a pretty good estimate.

Get professional help. Creating and executing a business exit strategy takes time – and expertise. So, as you think about your own situation, you might want to assemble a team that includes your financial, tax and legal advisors and an expert in business valuation. This last position – business valuation professional – will obviously be particularly beneficial in estimating the value of your business for a future sale.

Include the next generation in your plans. If you're planning on transferring your business to the next generation of your family, you'll certainly need to involve them in every step of the process. But even if you're going to sell the business to an outsider, or liquidate it entirely, you should keep your grown children informed of what you're doing, since they may be affected by the outcome. You also may want to include them in any meetings you have with your financial, tax and legal advisors.

Selling or transferring your business will be one of the most important financial moves you'll make – so plan ahead, get the help you need and find the exit strategy that's right for you.

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.

Edward Jones, Member SIPC.