It’s never easy to leave a business you’ve been running for years. Whether you’re retiring or moving on to new pastures, closing or selling a business can be technically complicated and emotionally fraught. If your exit or shutdown is unplanned, these issues become even more complex. So, if you’re anywhere near retirement age, it’s a good idea to start thinking about your business exit strategy – what will happen if you have to leave unexpectedly.
Accountants talk about ‘the four Ds’ of unplanned business exits – death, disability, divorce, and departure. These are not necessarily enjoyable to think about, but they are important. Without a solid exit strategy, they can all lead to an unwanted closure of a thriving business or loss of value when a business does close.
A business advisor specialising in succession planning such as an accountant can help you plan for expected and unexpected exits, giving you peace of mind as you head towards retirement.
Dealing with the 4 Ds
Your death, or the death of a business partner, is obviously difficult to plan for. But like a personal will, it’s essential. If you have a family member or co-owner who will take over, an exit strategy will make the transition easier. If the business will be sold or closed after your death, this needs to be planned as well.
Disability covers sickness or injury – and although the unexpected can happen at any stage, it’s particularly important to plan for as you get older. If you’re suddenly unable to run your business, do you have someone to take over? Do you know how much your business is worth so you can sell it quickly if you need to? Without an exit strategy, you could lose the value of your business when you need it most.
If you or your business partner decides to depart the business for personal reasons, you may be able to follow your standard retirement strategy without too many issues. Divorce is a bit more complicated. In the worst-case scenario, you may be forced to sell your business in order to pay your spouse. Alternatively, you could lose expertise and essential business knowledge if you and your spouse were co-owner/operators. Either way, planning ahead can help make a painful personal situation a bit less complicated.
Here’s where many business owners go wrong:
Variations in value
Most business owners think they know roughly what their business is worth – but these estimates are often inaccurate. Many owners judge the value of their business at around what they need for a comfortable retirement, rather than what’s realistic for the current market. When the business ends up being worth much less, they end up disappointed and underfunded when they do retire.
On the other hand, some owners underestimate what their business may be worth, then fail to get the best price when they decide to sell. This also leaves owners with less ready cash for retirement.
Using a business advisor specialising in succession helps you find out exactly what your business is worth before you leave. This information makes it easier to plan your exit strategy – you’ll have a good idea of how much you’ll be left with when you leave, and you can look at other ways to extract value if you’re disappointed with the estimate. If you are forced to leave unexpectedly, you’ll be ready to sell or close without losing potential value.
Other ways to extract value
When it comes to letting go of your business, shutting your doors may be your best option if you can’t sell or hand the reins to a family member. Even if closing is the best option, there may be ways to extract value from the business before you go.
For example, if you’ve been around for a few years, your customer base could be valuable to a similar business. If you simply close without trying to extract that value, you could lose out.
Again, this is where a good advisor comes in. They will be able to find ways to get as much value as possible out of your assets – including your customer base, properties, and physical equipment. Whether you’re retiring on your own terms or leaving for an unexpected reason, extra cash is always welcome.
Leaving it too late
Failing to plan for your exit is one of the most common mistakes business owners make. If you wait until you want to retire, or you’re forced to leave because of illness, divorce, or the death of a business partner, you could end selling or closing too quickly and losing potential value.
Don’t wait until you want out – plan ahead and you’re more likely to get what your business is worth. A specialist advisor or accountant can help you formulate a plan and estimate value ahead of time, so you’re not left empty handed, no matter what happens.
If you need help with growth and succession, then we can help. Get in touch now to find out more about how a GECA Adviser can help plan your successful business exit strategy.