No matter how successful your business is or how much you love what you are doing, at some point you must turn the business over to someone else. When that time comes, you will have two options: transferring the business to a family member or insider or selling the business to an unrelated third-party. The best strategy depends on a wide variety of factors.
Sooner or later, whether your business is an outstanding success or merely surviving, you will stop running it. This may be a planned decision or it may result from an unexpected catastrophe, but you will exit the scene. And, even if you intend to work until the day you die, you undoubtedly don't want the IRS to confiscate your hard-earned gains through estate taxes. Minimizing taxes generally requires advance planning.
Therefore, it makes excellent sense to develop you exit strategy before you need it. Now it the time to determine what happens to the business when (not if) stop running it.
You may already be contemplating your exit strategy. You may have concluded it's time to retire to a better climate or you want more leisure time or to try something new. Perhaps, you've gotten some discouraging medical news and have resolved to "put your affairs in order." On the other hand, perhaps your business has done so well, that a third-party has come knocking on your door wanting to purchase the business.
Don't wait until one of these events hits you over the head — start thinking about your exit strategy now, even if it might be a long time before you actually need to get out. That way, you'll have plenty of time to consult with professionals and put your plan in place, and you can optimize your chances of getting the most financial and personal satisfaction from the results.
There are four ways to leave your business
There are four ways to extricate yourself from your business:
- Pass the business on to family members.
- Sell the business as a going concern.
- Liquidate the business and sell the assets.
- File for bankruptcy.
Most business owners prefer the first exit strategy: Pass the business on to other family members. In order to make this strategy work, you must plan ahead because there is more involved than simply transferring the assets of the business. Your successor must be prepared to run the business! This means you must invest the time and energy into teaching your successor how to run the business; then you must begin to transfer the day-to-day decision making to him or her.
If this strategy won't work because your children or other family members aren't interested or qualified to run your business someday, your best bet is to sell your business as an ongoing, operating unit. This also takes planning. You will need to assemble a team to help you value your business, find a buyer, negotiate the sale, handle the transfers of assets and file the required tax documents.
If you don't find a buyer or you run out of time, you may have to liquidate and take what you can get for the remaining assets. And in some cases, a fourth choice, bankruptcy, is an option you should, or must, consider.