Friday, March 9, 2012

planning your business with your exit in mind

What will happen to your business when you retire? Do you plan to sell it? Hand it down to your kids? Or will you simply have a sale and close up shop?

Your business can have a life beyond you, the sole proprietor, but it takes planning. And this planning will not only benefit you 20 years down the line, it will also help you create stability, make decisions, and even expand your business in the present.

According to Katrina Scotto di Carlo of Supportland, when you start your business, you should be thinking with the "acquisition mindset" of a start-up, which prepares from day one to be acquired by keeping operations in order while constantly identifying a "value to the market or community." On the contrary, many small business don't often plan for what will happen when the owner, often the heart, soul and curator of the business, departs.

Many boutique owners may wonder how their business could continue without the principal tastemakers in house, but is there no value in the name or brand you've created, the relationships and supply chains you've established, the people you employ, the products you sell, or the services you provide?

Scotto di Carlo maintains "most business owners in Portland close shop not so much by choice but because they find themselves in a situation which forces that choice. Thing is, there's plenty of choices. It's just that several of the more attractive ones need thoughtful planning sometimes years in advance," like preparing your business for sale.

It's All About Planning

"Most business owners will spend approximately 80 hours on average building their business plan," says Michael P. Roy of Business Exit Timing. "And this is when they really don't have anything [like assets]. They spend an average of less than six hours figuring out ultimately how they're going to liberate themselves from their business."

Roy finds these actions incomprehensible as he believes that leaving a business is "probably the most significant, complex and important financial decision a business owner will make."

"If the biggest cause of failure is lack of planning," Roy says, "then why don't you spend and invest more time in planning how ultimately you want to leave your business?"

The goal of exit planners is to help small business owners design and implement "a written, formal exit plan—something that severs as a roadmap, that can empower and guide you through the exiting process"—whether you plan to sell to a third party (which Roy says only 20 percent of businesses actually succeed in doing), pass down to employees or family, or even close. No matter what you intend to do, Roy emphasizes contingency planning, which will help you exit your business or prepare for the unexpected.

Contingency Plans

Planning how to exit your business may also be an opportunity to organize and grow your business. If you don't have documentation of how your business functions, how would you ever go on vacation without closing your doors for a week? Or, more seriously, what would happen if you were injured or hospitalized?

Read the rest on Neighborhood Notes.

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