Business owners start businesses for a variety of reasons. They have discovered or created a great new product. They might have felt they could do a better job of providing a service. Some business are born out of necessity after a layoff. What ever the reason for formation all businesses have one common future, the person who started the business will leave the business.
While this departure sometimes occurs as a result of the business failure. Many times it is by choice when the business owner retires or decides to pursue other goals. The first choice doesn’t provide many options but the second is full of options.
A few options include a move into new ownership, new management with existing ownership or close the doors. More important than what option is chosen is the proper preparation to effect the change. This preparation should involve a team of experts to help the owner understand the implications of each of their options and then chart a path. The foundation for the team is an attorney and a tax professional. The team may need to include business valuation experts, business brokers and insurance agents.
As with all planning, the earlier you start the better the outcome. Ideally, within a year of start up the owner should have a general idea of their long term goal. Do you want to build a business that can be sold? Do you want to build a business for their children to work in and eventually take over? Do you want to work until they retire and then just close the doors? The end goal may direct the decisions for how the company grows and develops. Naturally this plan should be review because the desires and needs of the owner may change over time.
If the plan is to transfer ownership by sale or sweat equity, a plan should be developed and implemented at least 3 -5 years before the actual event is scheduled to take place. Having a plan in place can build the value of the business. It can also protect the value of the business from an unexpected death or disability.