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Every business owner eventually leaves their business. It’s preferable to leave it on your own terms, confident that the business can continue to thrive after you’ve stepped away.
The key to getting there is to start planning your exit long before the day you anticipate handing over the keys, which gives you time to map out your ideal business exit.
Talk succession before it’s an emergency
Start your business exit planning three to five years before your exit, which gives you options you won’t have if your exit is a panicked scramble.
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Too many business owners wait until health or burnout forces the process to begin. Beginning the process before your exit allows you to look at things objectively and to be more thoughtful in your planning.
With years of preparation, you’re able to take a critical look at your business and its trajectory, helping you to understand the best path forward for you and your business.
It also gives you ample time to enlist the help of a Certified Exit Planning Adviser (CEPA®) to guide you toward a successful exit.
With this critical look, you can also scrutinize who’ll best fill your shoes. You might have someone in mind, but if you haven’t had that conversation, they might not know you assume they’ll succeed you.
Conversely, there might be people close to you who assume they’re next in line to own the business, and unless you tell them otherwise, you might be in for some awkward conversations.
Family doesn’t equal fit
Primogeniture, or the system in which the eldest child automatically takes the reins of a business after the parent steps away, was once so common, it was expected, but that precedent was set by a society that ran very differently than our society now runs.
There might be someone more suitable to take over your business than your child, sibling or other relative. Whether that’s an outsider or someone already working within the business, it’s a decision that should be made early so succession conversations can start long before your exit.
Try not to focus too much on a family “legacy.” Sometimes, the best legacy is success and financial freedom — not a business staying in a family name.
Separate roles from relationships
A business run on emotion rarely survives its founder. Though it’s likely true that you have a lot of love for family members who work at your business, it’s important to look at your professional relationship with them through the lens of a successful business owner.
Clear job descriptions, fair compensation structures, and reasonable expectations should all be in place for all employees — related or not.
Preferential treatment to a relative can create a work environment where the relative takes advantage of the business, not giving the effort that should be given.
It can also create a work environment in which the other employees feel resentment for having to put in adequate effort when related employees don’t.
When considering who within your business might be the best fit to take over the business upon your exit, examine the merit and leadership potential of each employee instead of considering how close their branch of the family tree is to yours.
Know your number and your tax plan
Exiting a business can’t be the act of handing over the keys and walking away. There is a great deal of preparation that should happen to ensure you get the best price while also giving the business the best odds of continuing to prosper after your exit.
You need a solid exit plan, including a suitable tax strategy, regardless of who buys your business. Your tax strategy is a pivotal aspect of your business exit plan. Truth be told, the amount you keep after taxes often matters more than the amount for which you sell your business.
It’s not something you should try to navigate on your own. Even if you managed to navigate the ins and outs of growing a business on your own, your exit should include a trusted guide.
An experienced exit-planning professional will guide you through the labyrinth of exit planning, including the process of obtaining a valuation, securing a buyer, getting a tax plan in place and moving into the next phase of retirement, if that’s what’s next for you.
Legacy isn’t ownership; it’s impact
When you first started your business, you might have had dreams and visions of a legacy in which you passed the business down to your children, who would later pass it on to their children, and so on. While that’s an admirable legacy, it isn’t the only route to a legacy.
Your legacy can be about what you built. It’s not about who controls the business after you exit. Instead, focus on the purpose and culture you built and celebrate the continuity of that culture after you step away.
Careful planning and preparation will reveal if your family member is truly the best option to take over the business.
Remember that sometimes, doing what’s best for the business is indeed what’s best for the family, and vice versa. You’re not obligated to pass your business to someone who won’t usher it into its next phase of success, even if they’re expecting you to.
Do what’s best for you and your business, and enjoy the legacy you built.
