When is the right time to begin thinking about how you will ultimately exit your business? The answer is now. Retirement can sneak up on you and one of the biggest mistakes that business owners make is not starting to plan for their transition early enough. While it is easy to procrastinate on this front, doing so can significantly disrupt and delay your retirement plans. You have worked hard over the course of your career to build your business, and you deserve to enjoy the fruits of your labor. That’s why it’s imperative you begin your perpetuation planning now.
The Importance of Being Proactive With Your Business Exit Strategy
If you are intending to sell your firm to a third party, waiting until the moment you want to retire to explore a potential sale can be problematic. Completing a deal from start to close is an extensive process that can span several months to a year. It entails financial information gathering and analysis, marketing material preparation, potential buyer identification and outreach, offer evaluation, due diligence, legal agreement negotiation, and integration planning.
Additionally, many buyers will want you as the owner-operator to stay on post-close for what typically can be at least a one- to three-year transition period, thus making transitioning your business one other critical factor to consider when planning your exit. In the insurance industry, it’s common for transactions to include earnouts, which provide that financial consideration be paid to a seller post-close if the business achieves certain predetermined financial targets. Targets are often tied to revenue or profitability growth. As such, owners with earnouts have a financial incentive to remain with their business for a period after they sell.
Successful Perpetuation Planning Includes Reducing Your Firm’s Reliance On You
Another point worth noting is that succession planning is critical. This is true whether you transfer your business to an external buyer or go down the path of internal perpetuation. Although easier said than done, it is important that you take steps to reduce your firm’s reliance on you as the owner. In the years leading up to your retirement, take care to document and institutionalize key processes and procedures, identify key responsibilities, and delegate to others. It’s wise to build out your management team with those you believe are capable of taking the reins once you step away from the business, which will lead to a smoother transition for all. While buyers have financial resources, they do not always have someone at the ready with the background, talent, and skills necessary to take over for you.
For business owners, successful retirement planning requires a defined business owner exit strategy. Ensuring a successful transition of your business on your timeline can be done if you prepare early and have experienced perpetuation planning professionals in your corner.
If you have questions about Today’s ViewPoint or want to explore a customized exit planning strategy for your firm, email or call Kristen San Marco, Vice President, at (440) 392-6707.
Investment banking services offered through MarshBerry Capital, LLC, Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, LLC. 28601 Chagrin Boulevard, Suite 400, Woodmere, Ohio 44122 (440.354.3230)
