5. Sell to an outside third party 6. Engage in an Initial Public Offering 7. Retain ownership but become a passive owner 8. Liquidate Chances are that one of these paths is best for you; but which one? And which one would be disastrous for you
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or your heirs? Whether your retirement is just around the corner or years away, you owe it to yourself to begin considering these questions right now. Elmer Wheeler of Wheeler Ornament Metals, Dothan, AL, has no doubt about which path he’ll choose. “I plan to retire in about three years,” he says, and at that time I’ll pass the business along to my son. That will be the third generation for our business.” “A well designed exit plan has many advantages,” says business intermediary Richard H. Marsh, Jenkintown, PA. “Among other things, a good plan will help the owner to maximize the value of the business. It will also make it possible for the owner to leave the business under his own terms at the time of his own choosing.” “My partner and I believe that business owners should plan for their exit at least two years prior to leaving, if not longer,” says Fred Hageman, Hageman, Stansberry & Associates, Cameron Park, CA. “And you should have a clear understanding of what it means to exit the company. Will your departure be merely a function of training your children or heirs to run and manage the business? If so, do you plan to have any passive involvement, like being a board member or minority owner? If you have such a plan, do you have a written agreement in place outlining compensation or other benefits?”
Wheeler plans to stay on in a consulting role after he retires in order to help his son, a common arrangement in family-owned businesses. In some ways, it’s understandable why a business owner will neglect planning for the future. “With so much time spent keeping customers happy, dealing with human resource issues, ensuring that there’s enough cash to pay the bills, and still trying to eke out some semblance of a family life, most owners neglect planning for their eventual exit,” says exit planning professional and CPA, Greg Austin, Saint Louis, Mo. “That’s unfortunate because one thing is certain; eventually every owner must eventually exit the business.” Define your exit plan
According to Austin, most business owners have one or more of the following: 1. A will to direct how their assets should be handled when the business owner dies. 2. An estate plan which is usually created to assist in minimizing the estate and gift taxes paid on transfers of the business owner’s assets. 3. A verbal or written succession plan with their children, co-owners, or key employees about who should run the business in the future. “While these items are key ingredients in a formal exit plan, no single item is a plan in itself,” says Austin. “A well-prepared plan will use a team of professional advisors—attorney, CPA, financial planner/insurance professional—all focused on meeting the business owner’s exit goals.” Questions to answer
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“At a minimum, your exit plan should answer the following questions,” says Evans. n To whom do I expect to sell the business: partners, outside buyer, family, etc.? n What formula should be used to determine the value of the business for a buy/sell agreement with co-owners or in the case of the owner’s death? n At what age do I want to retire? Fabricator n July/August 2010