Business plans often address marketing, growth, and product development issues. However, business owners fail to create an exit strategy, succession plan, or acquisition plan.
Although you’re not ready to sell your business or retire now, preparing for the future of your business is crucial. You should decide who to leave your business to when you retire or if you unexpectedly die. You can also include contingencies for an injury, illness, or incapacitation.
Types of Business Exit Strategies
When you decide to leave your company, multiple options are available, including:
- Selling the business – You can sell your business and use the proceeds for yourself or as an asset in your estate plan. Your loved ones can benefit from the sale upon your death. Instructing your family to sell the business when you die also provides them with the money they might need to care for themselves.
- Creating a business succession plan – You might not want the doors to your company to close when you can no longer run it. By creating a succession plan, you can choose who you want to take over the business in the future. Your successor will have time to train and learn what they need to know to continue your legacy.
- Closing the business – Sometimes, the most sensible and realistic exit strategy is to close the business. Whether you choose to shut down while you’re alive or request your loved ones to close the business when you die, you can liquidate the assets for financial gain.
When You Need a Business Exit Strategy
You should think about the exit strategy you want to implement. Mishandling the transition of your business can lead to unpleasant consequences. You need to create a solid exit strategy soon if you wish to implement any of the following plans:
- Transition to employee ownership through an Employee Stock Ownership Plan (ESOP)
- Selling to an outside third party
- Family succession
- Transferring ownership to another existing owner
- The retirement or exit of a vital part of management, such as the CEO or CFO
- Closing the business
- Transferring from one partner to another
Benefits of Creating a Long-Term Exit Plan
There are multiple advantages to developing a long-term exit plan for your business, such as:
- Decreasing your estate’s and heirs’ potential tax liabilities
- Creating a system for seamlessly transitioning the business to a new owner
- Developing a plan for losing an essential employee to prevent disruptions to operations
- Preserving the current value of the business
- Providing sufficient income for your retirement or financial security for your beneficiaries if you die
- Having peace of mind knowing your plan allows you to exit your business at any time
- Creating a strategy for growing the business and increasing its value in the future