Small Business Tax Savings Podcast Why Will Every Owner Exit Their Business and How Can You Best Prepare For This?
Do you know why every owner exit their business and how can you prepare for this? On this episode of the Small Business Tax Savings Podcast, we welcome Stuart H. Sorkin from Business and Legal Advisors to discuss the ins and outs of exiting a business. This is part one of a two-part series geared towards educating people on what an exit plan looks like and what to consider when leaving their business. Stewart explains that there are six different ways an owner can exit their business: selling to family, management, a third party, becoming an absentee owner, having it liquidated or dying. He also encourages creating a strategic plan from day one in order to ensure that all partners have the same goals in mind.
Stewart dives into important topics such as the importance of finding a trusted employee to run the business until it is ready to be sold, aligning the goals of key employees with those of the owner, building a due diligence library as part of preparation for potential sale and accounting for unplanned exits from the business. He stresses how important it is to think about the future but also factor in changes that may occur along the way.
This conversation touches upon many key points that will help you understand how to best prepare your business for sale and create an exit strategy from day one. If you are in the process of or thinking about exiting your business, tune in now for this insightful discussion!
[00:00] Exploring Business Exits
· Every owner will exit his business in one of six ways: selling to family, selling to management, selling to a third party, becoming an absentee owner, liquidating, or dying.
· If an owner does not choose one of the first four options, one of the last two will happen.
· Partners need to have aligned goals and they must agree on the number they need out of the business.
· Financial planning should be done to determine what is needed from the business for retirement
[04:35] Planning for the Future
· Strengths and weaknesses of the business and management team should be identified
· Business owners should consider delegating tasks they don't like doing
· A strategic plan should be created with a perfect scenario 10-15 years out
· Plans should be adjusted as needed, but there needs to be a destination in mind
· Consider unplanned exits such as family members or management team leaving
[08:55] Preparing for a Potential Sale at Any Point in Time
· At some point, you need to find a key employee that you trust to run the business until it is ready for sale.
· Tie this person in with a stay bonus or percentage commission on the sale of the business.
· Align key employees' goals with yours regarding an eventual sale.
· Make sure the business is not too dependent on one or two customers.
· Always be prepared for a potential sale of the business.
[13:28] Creating a Plan for Growth
· Common goals and objectives should be established for a startup
· Financials and personal goals should be taken into account
· Avoid becoming an "absentee owner" by delegating tasks
· Businesses should have a plan for growth