The thought of planning for your business exit can be overwhelming for owners – there are so many areas to consider and decisions to make. That’s why we generally advocate that owners tackle their exit planning over a number of years using a phased planning approach. It can be a great way to help alleviate the stress of a large project like planning for the future ownership of your business.
A logical place to start your exit planning is to consider the factors that will impact your business value. While there are numerous value drivers that owners need to focus on to maximize business value, one of the most important is business continuity.
Could your business continue operating if something were to happen to you and you were unable to run it?
It’s critical that every owner consider this question – especially if you’re thinking about selling your business. If you’re selling internally, your successors will need to be able to run the business in your absence. If you want to sell to an outsider, potential buyers will want to be sure the business can operate without you, and it will affect how much they might be willing to pay for the business.
Let’s take a look at an example of an owner that needed help creating a contingency plan to ensure that her business would run successfully without her.
Prioritize Your Goals & Objectives
Carol owns a structural engineering and design firm with an average of $8 million in annual revenue. She owns 100% of the company. Her family has never been involved in the business. She has a few key employees that she trusts, but she is not completely confident that they will be able to manage the business for her once she is ready to step back.
A year ago, Carol’s husband passed away unexpectedly in an accident. Her key employees did a great job of keeping the business going while she was grieving and taking care of her husband’s affairs. But now that she is starting to return her attention to the business, she’s realizing that if something unexpected happens to her again, the business may suffer, company debts may not get paid, and employees may be out of work. She is aware that she needs to start developing a plan for the worst-case scenario, but she’s not exactly sure where to start.
Carol is a good candidate for phased planning. If one of her main concerns is the long-term success of her business, the first phase she might focus on is contingency planning to ensure business continuity.
This type of planning can help handle, in advance, a variety of events that can impact the business when the original owner’s involvement with the company is somehow interrupted. It will help mitigate the impact of a serious disruption in areas like customer or vendor relationships, day-to-day operations, or management of critical business.
Specifically, she should consider doing the following:
- Develop a well thought out written plan that outlines her wishes for the management of the business.
- Establish and incentivize a stable and motivated management team.
- Communicate with and train her team on how these plans will be carried out.
Our team has helped hundreds of businesses owners in various industries create unique sustainable plans to retain quality talent. Schedule a confidential meeting with our team at your convenience for assistance with phased planning now!
Material discussed in this communication is provided by Business Enterprise Institute, Inc. and Business Transaction Academy. Advisory services offered through Commonwealth Financial Network®, a Registered Investment Adviser. Financial and exit planning services offered through Alliance Private Wealth LLC are separate and unrelated to Commonwealth.