Sooner or later, every entrepreneur will either want to retire or be forced to. Yet most never think much about the future of their business after they’re gone. It’s easy to become so tied to your business that you cannot separate your identity from it. Even if you cannot imagine leaving your business any time soon, the time to plan is now. Here’s a rough overview of your options.
For many entrepreneurs, selling their company to a larger entity is a dream come true that offers a path to retirement and maybe even riches. A buyout is an enticing option, but will not succeed if you do not have a successful business that investors want to invest in. You’ll also need plenty of support, and a workable plan. So focus on getting your books in order, and consult with an M&A advisor if you think selling your company might be in your future.
Leaving the Company to an Heir
For some business owners, leaving the company to an heir is by far the most appealing alternative because it keeps your company in the family and encourage you and a loved one to work together to build the company. This strategy can instill a sense of pride in your children, and shared joy in a joint pursuit. It can also doom your company to failure if your heirs are not really qualified to run a business. So proceed with caution and begin gradually preparing your heirs over time, rather than dropping the company into their lap all at once.
Leaving your company to an heir can keep it in the family, but is not an option for everyone. Another alternative is the gradual fade-out. With this approach, you sell small quantities of shares to your employees over time. This allows you to gradually retreat from the company as your staff takes more responsibility. You’re leaving the business to the people who already help you run it day to day, so make sure you have a great staff.
While these options are the most popular, they are far from the only. Some other routes to consider include:
- Shuttering the business: If you want your company to primarily be a means to making more money, then closing the business and liquidating its assets at retirement may be the most lucrative option.
- Selling off parts: You can sell your company in bits and pieces, especially if the company as a whole is struggling or is otherwise not an attractive target.
- Management buyout: Similar to the gradual fade-in/fade-out, this allows your management team to become your company’s owners.
Exit planning is not something you do one thing and forget about. It’s an ongoing process. Indeed, you might even work your way through several different exit plans. When a buyout fails, you might consider leaving your company to an heir, or later find that your staff are well-equipped to manage and own the company. Whichever option you pursue, sage advice from skilled advisors and plenty of preparation are key to making it work.