Succession planning

One of the biggest issues facing business owners today is one that we rarely like to talk about and are even less likely to act on: exit strategies.

Exit strategies can be a number of things and encompass a number of options, but one thing is for certain,the time to start thinking about them is past due, no matter how young your business is.

Exit doesn’t necessarily mean closing up shop, it can very well mean passing the business on to the next generation or selling it and retiring. All of these options require planning.

If you were an employee of another business, rather than self-employed, you would likely have a retirement account that you contribute to and financial manager that you look to for advice on how to best manage that account.

The best thing you can do for yourself is to consider yourself your own employee in regards to your retirement and contribute just as you would if you worked elsewhere.

Your next obligation is to make sure that you are constantlycreating new value and preserving the value that already exists in your business. That means taking care of your inventory, budget, customer base and making the right choices to make your business as valuable as possible when the time comesto sell. If you aren’t sure if you are on the right track with this, there are no and low cost services available throughout Marquette County including the Lake Superior Community Partnership and the Small Business Development Center.

Having a clear understanding of where you stand financially is crucial when it comes time to sell your business and that will come down to the valuation of your business. To you it is priceless, you’ve put your life into it, but there is a standard method for valuation. A few of the areas that are considered are; the nature of your business, general economic outlookfor your industry, book value of your stock, earning capacity of the company, prior sales, goodwill, dividend-paying capacity and the going free market rate for stock in similar companies in your industry. Yes, it seems complicated, and it is, but there is help available and good record keeping is half the battle (we’ll cover that in two weeks).

Once you have an agreed upon valuation and are ready to move on,its’ time to transfer ownership and control of the company to the new owner. There are a number of ways to do this and every organization strives for a smooth transition. Clean,organized records will make this process easier for all involved. In some cases previous owners are asked to stay on for a set amount of time to assist with the transition and often there are provisions for current employees, but these are contractual issues that will be dealt with during the negotiation process.

At the end of the day, even if that day is 25 years down the road,you want to be able to leave your business with confidence that you and your family’s needs are met and the company you spent your life building has a strong foundation to continue to grow on.

For more information please contact the LSCP, SBDC or your Financial Advisor.

Editor’s note: Amy Clickner is CEO?of the Lake Superior Community Partnership. Her twice-monthly column will address topics of interest to the local business community.