A graceful exit: plan ahead for a smooth ownership transition.

• Author: Tanner, Richard H.
• Position: Money Talk

For a small business owner, the New Year is a great opportunity to take stock--not only of the past year and your present business prospects, but also of the future. As you look forward, can you leave your business in style?

Is your exit plan complete so you can leave your business when you want, how you want and to whomever you want?

Too many times, business owners are--quite understandably--so busy working in the business that they put off the need to work on their business. A majority of closely held and family-owned businesses will change hands within the next five years. Very few of them will be prepared for a smooth transition.

That sobering truth is why an exit plan is so critical. It's a blueprint to help promote a smooth transfer of the business under all circumstances. One never knows what tomorrow may bring. Taking the time to think about a cohesive exit plan now can eliminate crucial risks. Your employees, your clients--in fact, your overall business--may be vulnerable without a plan in place.

Setting Goals

An exit plan increases the odds that you can leave the business under your terms. Most business owners spend a lifetime building a business yet seldom take the time to develop a successful exit strategy. Setting consistent and achievable objectives early in the exit-planning process is critical.

Three principal objectives common to nearly all business owners:

* Leaving the business on their timetable. How much longer do you want to remain active in the business?

* Leaving the business financially stable. How much after-tax income will you need from your business to live the lifestyle you desire?

* Transferring the business to whom they desire. How will you transfer the business to an outside party, a key management group, co-owners, a family member or to all employees?

Let's say you've determined you only want to remain in the business for five more years, and you've decided to transfer the business to your son, who is a key employee. Establishing clear exit objectives relative to this strategy is vital. For example: How much after-tax money do you want or need? Where is your son going to get the capital to buy you out? What is the business worth? Will payments be dependent on his ability to manage the business successfully in the future? Answers to these and other questions are vital in securing financial independence while exiting your business.

Food for Thought

To evaluate your current exit plan, take this business owner...