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Preparing Your Business (and Yourself) for a Smooth Exit

Key Takeaways

  • Planning your business exit should start several years in advance.
  • Make sure you have your financials, processes, structure, and advisors in place to optimize your valuation.
  • Think long and hard about how you will spend your time post-exit. Life without your business can be an extremely tough adjustment.

If you’re like many business owners, the value of your business is your single largest asset. You may have saved diligently along the way as you built up your business and increased your income, but the financial windfall you receive after exiting can provide a significant boost to your overall net worth and retirement assets.

There are many things that should be done and evaluated prior to the sale of your business to maximize its value and to ensure your goals are met. Here are five of the most important considerations:

  1. Determining what the sale or transition of your business looks like. Will you be selling it to existing employees, children, or a third party? Each scenario has different results and structures. It’s important to understand how your decision affects the transition and the amount you will receive from the sale.
  2. Making sure your company profitability, structure, and employee base is set up to maximize the value on the sale. Initially, you may be focused on maximizing revenue to the firm, but as your business matures, you need to focus on structure, processes, and profitability to make your business as appealing as possible to purchasers.
  3. Having the right advisors in place to ensure a successful transition of your business. The complexity of a business sale may require a new set of advisors to ensure you are maximizing enterprise value, minimizing tax implications, and developing a plan before and after the sale that meets your retirement goals.
  4. Ensuring the net proceeds from the sale (in combination with your retirement savings) will sustain your standard of living for the remainder of your retirement. The potential sale price of your business might sound like a lot, but it may not necessarily be enough to sustain the standard of living to which you have become accustomed.
  5. Fully understand how you will spend your time once your business owner identity is gone. It is not unusual for entrepreneurs to struggle as they move on to the post-exit phase of their life. No amount of money will be enough if you don’t find fulfillment in your next chapter.

Start your exit planning early on, prior to the transaction taking place. This step is key to addressing issues like those listed above.

Develop a Plan

It is very easy to get wrapped up in the daily grind of running and managing your business, but you must carve out quality time to think outside the box and focus on your post-owner future. In the next articles in this series, I will address some of the steps that need to take place as your business matures and you look toward retirement and the transition of your business. Through thoughtful and effective planning, you can realize your financial goals and protect your family and your assets.

If you or someone close to you is considering a business exit, please don’t hesitate to contact me. I’m happy to help.

Todd Flynn, CPA, CFP® is a Principal at Soundmark Wealth Management, LLC. Todd works closely with physicians, business owners, and other high net worth individuals to help them define their financial goals and implement an ongoing financial planning process.

This report is intended to be used for educational purposes only and does not constitute a solicitation to purchase any security or advisory services. Past performance is no guarantee of future results. An investment in any security involves significant risks and any investment may lose value. Refer to all risk disclosures related to each security product carefully before investing. Soundmark Wealth Management, LLC, its advisors and its affiliates do not provide tax or accounting services. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax or accounting advice. Please consult with your tax advisor prior to engaging in any transaction.

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