Currently, I’m in Chicago USA attending the MBA style intensive exit planning study program for Small to Medium Enterprises.

I’ve had 3 days to adjust for jetlag and tonight I treated myself to the Broadway hit show – The Million Dollar Quartet.  This was not only a brilliant display of talent and showmanship, but also raised some interesting points relevant for business owners.  The story is told through the eyes of the Sam Phillips, owner and manager of the recording label “Sun Records”, that gave new talents their chance to make it in show business.  It’s been said that it takes talent to know talent, and that is what comes across loud and clear to me about Sam as I enjoyed the show.  Sam discovered the big names such as Elvis Presley, Johnnie Cash, Carl Perkins and Jerry Lee Lewis. Sam had the knack of understanding the wants of the teenage music market at the time, and hand picked the talent that would provide it.  The rest is history.  Despite Sam’s great ear for the up and coming sounds that would pay dividends for his company, he didn’t understand the need to protect his business what he had worked so hard in business to achieve.  He’d taken the risk with these young unknowns, and was so successful at promoting them, it attracted the intense interest of bigger players that enticed these young ambitious artists with lucrative contracts involving greater exposure and success for them.

Sam made some key business mistakes.

1. He had not conceptualised a continuity strategy that would protect his revenue streams.  When he lost his best artists, his business was virtually worthless.   

2. When the offer presented for him to merge with a larger competitor, his ego would not allow it, and hence he suffered financially… Sam didn’t know when to relinquish control for the greater good of him and his company.

3.  Sam did not know how necessary it was to grow his company along with his clients.  They outgrew his service offering and had no choice but to move on, despite them being very appreciative for all he’d done for them.  Not one of them made the decision to move very easily.

Sam was a great guy and a very talented one, but it takes more than this to succeed in business.

I have to ask you now, are you making some of Sam’s mistakes? Or have you implemented strategies to protect your business income?  Is your business developing in a manner that will retain your clients?

 Have you thought about your business exit strategy and is it prepared for all possibilities?

Without a plan to address these fundamental business attributes, it’s likely your business has no real value that can be sold, which is likely to impact your financial future.

 If you want to know what you can do to protect and grow your business value, start by reading the book, “Your Business Succession…proven strategies to boost business profits from start up to step down”  It’s all about how to enter, execute and exit from your business for maximum cash flow and profit.

You can also sign up for the Free Webinar on 21 June 2011 by emailing your interest to my office at support@ybsprofits.com    or   call 1300 499 225 to book your place.

The session will be run in two timeslots, 2pm and 7pm of 45 minutes duration.

Places are limited so don’t delay.

Here’s to your successful business exit strategy!

Leigh Riley

The cost of failing to identify the economic factors that affect your practice:

Your practice valuation may change in line with economic trends, the needs of the community that you service, and the general perception of the value of your service to its community.

Staying abreast of market and patient demand can allow you to update your practice model, and taking those changes into account will be every bit as important as re-evaluating your practice value when seeking a buyer for your practice succession.

Practices operating in country and outback areas may have fewer potential succession options and eventual buyers, because many younger or up and coming GPs are reluctant to set themselves up for what they believe will be a life of isolation and a lack of social facilities frequently experienced in country areas. This results in multiple forms of loss – to the medical practitioner who is keen to sell the practice for a a fair profit, and to the communities of our nation’s country areas, due to the loss of essential medical services. With continued rising costs to the health system, the supply of doctors in remote regions slowly shrinks.

There are however win-win solutions that could help to turn around this dilemma…

CASE STUDY #2  – Practice succession strategy for a country GP

Dr Richard, a GP in a small country community, implemented a well constructed succession plan to overcome the difficulties he faced in selling a remotely located general practice. Here are the main features of his continuity strategy:

1. Dr Richard sponsored Ian, a talented student from his community, through medical school.
2. Ian, having strong family ties to the local area, was more likely than most to want to return to the region if he could be assured of career prospects there.
3. Dr Richard seized the opportunity to build his succession plan, and secured an agreement with Ian to join his practice as soon as Ian was fully qualified.
4. Both parties benefited from the agreement, with Ian receiving substantial financial support during his studies at medical school, and with Dr Richard gaining the assistance and continuity which he required, via a legal commitment from Ian to work in the practice.

There is nothing to prevent GPs in any location from developing a similar strategy to assure a potential candidate for their practice. Many Medical students will graduate with significant HECS debts, so may be attracted to the possibility of commencing their career with a clean financial slate, by accepting a similar arrangement as offered by Dr Richard to Ian.

Government incentives that may assist your practice succession

The Australian Government has instituted a scholarship program for medical students with the specific purpose of encouraging more GPs to practice in regional areas.

The Bonded Medical Places (BMP) Scheme allows up to 600 students to receive HECS reimbursements, in exchange for a commitment to work in districts where there are shortages of general practitioners. They must do so for a minimum of six years after gaining the general practitioner fellowship.

In addition, the Medical Rural Bonded Scholarship (MRBS) enables up to 100 students who are prepared to commit themselves to working in rural locations for a minimum of six consecutive years, after completing fellowship studies as general practitioners, to receive (from 2010) $24,207 per annum, tax-free, and indexed annually, while they study.

You can read more about the details of these scholarships my latest book, “Your Practice Succession: How to Leave a Legacy and Reap the Rewards of a Lifetime of Service to Your Community”

How prepared are you to exit your practice with maximum cash flow and profits?

Take the FREE quiz and find out!

To Your Profitable Practice Exit,
Leigh Riley

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Prescription for business succession disaster!

Bill and Ben were equal-share directors of a profitable medical supplies distribution business for ten years. They estimated the business value at around one million dollars. When Ben suddenly died in a car accident, Bill thought he would automatically borrow to buy out Ben’s shares from Ben’s beneficiaries, but he faced a number of unexpected problems.

• Problem 1: Ben’s estate attorney arranged a business valuation to determine the value of Ben’s ownership for distribution to his estate, revealing that the business value had grown to $1.5 million. For Bill to buy Ben’s shares, he would need to borrow $750,000.

• Problem 2: Although the business was going well (with both directors operating it), Bill struggled to find adequate finance (the maximum he could borrow was $350,000) because his personal debt commitments were significant and he had forgotten the business had previously provided personal guarantee security against a mortgage for Ben’s family home.

• Problem 3: Ben’s wife, who didn’t work, needed the money from the business to pay off the mortgage and meet other family expenses, so was applying legal pressure to Bill to do something to release some cash.

• Problem 4: Bill was extremely traumatised by the loss of his long-term working partner and the resulting financial challenges. The situation took months to resolve and affected the business operations in a way that negatively impacted sales fulfillment, which was predominantly Ben’s area of strength in the business. Customers became disgruntled and began purchasing from competitors, which in turn affected sales, cash flow and ultimately the business value.

• Problem 5: Ben’s eldest son Tom had been working in the business as a storeman, and felt he was entitled to move into Ben’s role automatically as a beneficiary to the estate. Although Bill had tolerated Tom working under Ben’s charge while he was alive, Bill could not entertain the idea of working directly with Tom because he was too inexperienced. On top of that, Bill had always found Tom to be spoiled, immature and irresponsible, so considered him to be an undesirable working partner or co¬owner.

• Problem 6: Bill was desperate to find another equity partner, but aside from Tom, no candidates presented. Bill was not able to form an agreeable arrangement with Ben’s widow, who was represented by strong legal counsel. The situation had become quite acrimonious and Bill was forced to sell the business. The business sold 18 months later for $1.1 million, some $400,000 less than its valuation immediately after Ben’s death.

A poor succession outcome for Bill

Bill had lost a large part of his life’s work through his inability to arrange capital funding to take full ownership of the business when Ben died. This was a heartbreaking loss from which he took years to recover.

Although Bill and Ben were excellent business people in so many ways, they made an enormous error of judgement by failing to plan certain aspects of their business that were essential to ongoing good management. During all their previous business planning sessions, they had never discussed a succession plan or taken the simple steps that could have easily prevented the stress and heartache that Bill, Ben’s widow, and Tom all endured.

How to prevent the forced sale of your business

1. Implement thorough succession planning measures, such as forming an agreement that contains funding mechanisms to release owners from debt and guarantee commitments, to ensure that all owners remain in a strong position to negotiate a sale no matter what the circumstances.
2. Educate yourself - read in detail about what Bill and Ben could have done to prevent this situation in the solution suggestions in Part 5 of my book “Your Business Succession: How To Exit Your Business With Maximum Cash Flow & Profits”
3. Conduct a FREE self-assessment of your readiness to exit your business profitably under any circumstances at www.BusinessExitQuiz.com

To Your Profitable Business Exit,
Leigh Riley

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Why you want to properly value your medical practice

Dr Dave, a GP nearing retirement, offered Dr Peta, a talented younger GP, a 20% stake in his Practice, as a retention strategy, and also as part of her remuneration package. They agreed verbally to a loose and informal buyout strategy, whereby Dr Peta would acquire the remaining 80% over four years, as part of the incentive bonus remuneration package on which both doctors had agreed.

The Practice valuation was based on Dr Dave’s own estimations, because both parties believed that it was not worth paying the accounting fee for a formal valuation.

Later, Dr Peta married, and soon afterward tragically died in an accident. Her new husband requested a formal valuation of the Practice and made demands on Dr Dave for payment to the value of his inherited shares.

The formal practice valuation was higher than Dr Dave had estimated, and because the shares had been offered as incentive (rather than being purchased) under a verbal agreement, Dr Dave didn’t believe that he should pay the spouse anything. Unfortunately the legal opinion disagreed, and Dr Dave had to pay up. Without available cash on hand, Dr Dave was forced to borrow the funds in a difficult borrowing environment, which required him to delay his retirement significantly, until the debt was repaid.

What’s more, finding an alternative potential buyer was difficult due to the lack of available candidates at the time. The costs involved in resolving the legal dispute far outweighed any initial succession set-up costs he would have incurred. If only he had sought professional advice from the beginning!

This case could easily have been an example of a viable succession strategy for the GP; instead it demonstrates a series of common succession strategy errors, all of which would have been avoided with appropriate professional guidance.

What Dr Dave could have done to prevent his practice succession nightmare

Dr Dave would have needed to include a number of vital measures:

• Invest in qualified professional advice to ensure the strategy would work for both parties.
• Organise a formal valuation of the Practice to determine the true basis price as part of the terms.
• Formalise the strategy with specified terms, in a legally written Buy-sell agreement, so that there could be no misunderstanding regarding each party’s rights, and so that loved ones would automatically benefit without distress or legal argument.
• Arrange insurance to meet the contingent aspects; this would have provided instant capital to pay out the deceased party’s spouse (thereby requiring no debt funding), and may also have allowed Dr Dave to retire fully funded, without the need to delay his retirement.
• Professional advice from exit experts would have ensured that the strategy would provide the most advantageous structure from a tax perspective.

How prepared are you to exit your practice with maximum cash flow and profits?

Take the FREE Business Exit Quiz and and find out!

To Your Profitable Practice Exit,
Leigh Riley

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Poorly Communicated Succession Plans Can Lead To Business Failure

One of the biggest mistakes made by business owners when it comes to succession planning is making all the decisions alone. Often the most difficult decision is how to a divide a business in a family situation, particularly if the main asset you hold is your business and you have one or more children competing to eventually take control.

As the business owner, it is more than likely your right to ultimately distribute and hand over the business in the way that you feel is most appropriate.

However, if an amicable outcome with business continuity and harmonious relationships are important to you, then you would be wise to include all the family members involved and communicate your intentions to gain feedback and acceptance from the main stakeholders. If you fail to communicate your intentions accurately with all involved, the outcome could spell disaster for the business, resulting in financial disappointment and relationship breakdown for all the interested parties.

CASE STUDY – Family disputes after succession cause business closure without a sale

Business owner Stuart was the father of three children. His eldest child, Tim, had worked in the business all his life and had contributed significantly to building the business value. When Stuart died, leaving an equal share of the business to each of his three children, Tim felt short-changed because he had made the business his life’s work.

The business had insufficient borrowing capacity and Tim could not afford to buy out his siblings, who insisted on liquidating the asset, forcing the sale of the business. Tim contested the will, insisting he deserved more than one-third.

Unfortunately, the business remained closed during the lengthy and costly lawsuit that continued for two years, resulting is irreconcilable family breakdown and decline in the business value due to loss of income and clientele.

To add insult to injury, an opportunistic competitor established a similar business across the road, effectively gaining all of the business clientele.

How to prevent family disputes after succession from destroying your legacy

This situation could have been prevented and all parties’ interests could have been protected if only Stuart had chosen to communicate with Tim about his intention of leaving equal shares in the business to each of his children. Tim could have expressed his passion for the business and his desire to one day own the business, which would have provided the opportunity for them both  to seek advice about how to structure it so that Tim could take over without his siblings missing out on their share of the inheritance.

The simple solution to this problem would involve Tim entering an agreement with his father to buy out the business upon certain succession triggers. The agreement could be arranged to provide Tim with full funding by using insurance and vendor finance terms to facilitate the transaction. Full details of the strategy and options for this case study are revealed in Part 5 of my book ‘Your Business Succession: How To Exit Your Business With Maximum Cash Flow and Profits.”

Revealing your succession intentions is only one part of the communication required within a business to ensure every stakeholder understands their rights and responsibilities. Communicating the exit terms from the very start of your business relationship is essential for a fair outcome during times of internal disputes, as you’ll discover in the next case study about situational errors in succession plans.

How prepared are you to exit your business with maximum cash flow and profits?

51% of small business owners in Australia exit before retirement age  in unplanned circumstances. Take the FREE business exit quiz to see how prepared you are to prevent this happening to your business and your family.

To Your Profitable Business Exit,
Leigh Riley

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How often does the subject of business succession come up at your dinner parties?

At a recent dinner party I had a conversation with someone who had just started reading my book “Your Business Succession.” This person had lost a business partner to sudden death two years ago, leaving him in a very grim financial situation.  It had taken two full years for the business to get back on track, a task which the remaining owner admitted had been almost too difficult to endure.

When I asked him what he is doing to make sure he doesn’t leave the same situation for his family I was shocked when he replied that he is not thinking of leaving his business for some years, so he didn’t see the point of arranging his succession plan just yet!

Stunned by his obvious lack of connecting the dots between what had happened to his business partner and what could happen to himself, I could not hold back my response which was… “You say this even though you have just experienced first hand the drawbacks of not having a succession plan for the key people in your business! Do you think your business partner planned on leaving your business the way that he did?  Do you really think you will always control the circumstances by which you will leave your business?”

I probably wrecked this guy’s night, because he was awfully quiet for the rest of the evening, but I’m not sorry if I’ve caused him to re-think his need for a succession plan more carefully.  If I’ve provoked in him the desire to take action, then my mission in life will be fulfilled… if I can prevent only one more business owner from enduring the humiliation, stress, aggravation and horror of facing the outcomes of a failed business exit, I will be extremely satisfied.

51% of business owners exit before retirement age

Did you know that In Australia 51% of business owners leave before retirement age, and not all of these are because the owners had a simple change of heart.  Many exit their businesses due to unplanned situations that almost always cause distress, financial loss and all the emotional upheaval associated with situations that catch people off-guard.

I urge you to take note of this message, and to take immediate action to put a succession plan in place to protect yourself and your family.  If you’re not convinced, you want to read my book “Your Business Succession” and discover the 6 succession triggers as well as the 5 reasons so many business owners exit without all the financial rewards and profits they deserve.  Then discover how you can overcome these issues by using our unique system of the 7 Profits Keys because they are the secret sauce that will allow you to enter, execute and exit your business with maximum cash flow and profits.

How well prepared are you to exit your business with maximum cash flow and profit?

If you want a quick overview of how to fill the gaps in your succession planning, then you can simply take the FREE Business Exit Quiz and you will receive a customised list of action steps to point you in the right direction.

Don’t worry about disappointing me, worry about disappointing yourself and your family and loved ones if you don’t have a proper succession plan that will allow you to profit throughout most circumstances – both planned and unplanned.

Here’s to your profitable business exit!
Leigh Riley

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Are Verbal Agreements in Business Succession Plans a Good Idea?

In business situations, verbal agreements about succession plans, or indeed any aspect of the business, are usually made because the people involved share a relationship of trust. Operating on verbal agreements appears to be quite acceptable among members of the extended family, with friends, or with partners, because there is the belief that the quality of the relationships will ensure that agreements will be honoured in the manner intended.

What happens to the verbal succession plan when things change?

However, the problem with verbal agreements in business is that circumstances can change – people’s recollections become distorted over time, and the resulting misunderstandings can cause not only relationship breakdown, but also breakdown of your business.

Case study – verbal agreements in a family succession plan leave the successors vulnerable

Sonya retired and handed over her farm business in equal shares to her two children, who had always worked hard on the property.

Sonya asked for no payment for the business, and the children agreed to pay a lease fee for use of the farmland to provide Sonya with the income she needed to fund her retirement.  They did not have a formalised lease and arranged the terms on a verbal agreement basis , which seemed fair to everyone at the time because of their family relationship.

When Sonya suffered a heart attack, she decided to liquidate her assets by selling the farmland. She felt entitled to do this because it was her property.

Verbal Agreements Can Lead to Relationship and Business Breakdown…

Unfortunately Sonya’s adult children could not afford to buy the land and the new owners plans for the land did not include allowing Sonya’s children to continue farming under a lease arrangement. This resulted in the children losing everything they had worked for – they were effectively out of business and even out of a job.

This sorry story is an excellent example of why verbal agreements are not suitable succession arrangements, even in loving or close families.

How to protect all members of your family in your succession plan

One straightforward succession solution to avoid this disaster would have been to arrange a written, formalised lease agreement between the family members so that the rights of all involved would be protected. The agreement could have been extended to allow the adult children first right to buy upon Sonya’s decision to dispose of the property.

Furthermore, funding could have been arranged with terms to arrange payment over time, or by using insurance to provide immediate funding upon certain events—such as a heart attack.

Discover more succession solutions

You can read the full details of suitable succession strategies for similar situations in Part 5 of my book “Your Business Succession: How To Exit Your Business With Maximum Cash Flow and Profits.”

To Your Profitable Business Exit,
Leigh Riley
Succession Solutions Specialist

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Many people believe that they will decide when they will leave their business, yet the statistics show that 51% will leave prior to the time intended for various reasons.  If 2011 is the year you believe you would like to leave, you will need to think about how you can realise the financial rewards from a lifetime of effort.  There are a few things you can do to ensure you maximise your outcome to a smooth succession and here are my top tips for you to follow:

1. As early on as possible, you should be planning your exit and eventual sale, so get your business in order! 
 You need to build a safety net that will guarantee you a price for your efforts.  When you sell a house, you present it in the best way that you can to attract buyers and maximum price.  Selling your business is the same. 
 Make your business something that someone will want to buy.  Understanding that buyers want a business with good  systems and customer management processes, market penetration, business cashflow with profitability, and well trained people so that the business does not depend upon you to operate it. 
 
Engage a Business Coach to sharpen up your business edge in the same way you would engage a tradesman to fix up  the loose ends around the house or a personal gym trainer to help you shed some of those extra pounds. 

2. Remember it’s not what you sell your business for that will count, it is the amount you receive after tax that will  provide you with the most favourable outcome, so solid prior tax planning is essential from professionals that understand the impact of succession. 

Seek advice from Succession Planning Specialists who are working as a team. You don’t go to a general practitioner if you need an orthopaedic specialist and the same goes for business matters that need special treatment.  
To put yourself in position for the best financial outcome, you will need a team of Specialists from accounting, legal, risk management, and business broker willing to work in concert to devise your position of strength when cashing in on years of effort in the most tax effective manner.  They can also approach potential suitable buyers on your behalf when discretion is necessary due to potential market impact that may be caused by an impending sale.
3. Determine who the potential buyers may be as this may impact the method used in the changeover.  You may need to think outside the square when an immediate buyer does not come to mind.  If you are fortunate, a fellow proprietor may be the prime candidate if you are in a co-owned business.  If you are a sole proprietor, you may have staff or a friendly competitor who maybe a likely candidate to buy you out. The suitable candidate and their ability to pay for your business will impact the method for changeover.

4. Decide how the new proprietors will fund the buyout and on what terms. If you’ve been in business for a while, the chances are that your business has grown significantly in value.  Funding your purchase price may need some time and thought to ensure a prospective sale proceeds smoothly, enabling you to realise all of your hard earned equity in cash.  It may be useful to implement a key staff reward system whereby shares in the business rather than cash bonuses paid over time can help to facilitate the buy-in.

5. Deal with liabilities and personal guarantees related to the business as early on as possible, as these do not
 retire nor die with you.  Your succession plan must extend to adequately alleviate you of these responsibilities.

6. You may not be able to leave the business when you choose, so it is essential to include planning for contingencies.   Unexpected exits such as poor health, disputes, divorce or death can leave you in a weakened position. 
 

Your succession plan should provide you and your family with a pre-arranged price with tax effective terms and insurance to ensure adequate funding at your price.

You can find a lot more detail about the essential points made here in the book “Your Business Succession”.  For your FREE customised assessment to determine how well prepared you are to exit your business, go to the Business Exit Quiz. It takes about 3 minutes to complete and provide you with details of the areas you need to focus on to ensure the most profitable outcome for you when you leave your business.

Here’s to your Profitable Business Succession and your prosperity for 2011!

Best wishes

Leigh Riley

How your family’s health can impact on your business exit profits…

In this series, I am revealing 6 of the Situational Errors that can prevent your business from capitalising when you exit your business at any stage, particularly when the exit is beyond your control. My previous post revealed the first of these situations, where Brian, the owner of a Mechanic workshop, had made an error in judgement about succession planning.  He did not see the need to implement a business exit strategy because retirement seemed a long way off at his age. Unfortunately he developed a severe illness which forced him to exit his business at a very young age, causing financial hardship for his family and job loss to his employee.

In this post I’m going to insist that you don’t limit your thinking to how your own health can impact the continued viability of your business, because this would also be an error of judgement. In my book “Your Business Succession” Case Study # 8 discloses how Judy’s profitable, home based clothing manufacturing business was forced to a grinding halt because her child was diagnosed with leukemia and in need of constant, ongoing care.

How prepared is your business to enable you to care for a sick child?

Judy had some very capable employees, but none were driven or talented enough to run the business without her leadership.

The smaller your business, the more vulnerable it can be if you have to exit early

The smaller your business, the more vulnerable it can be, so structuring your business with an exit strategy for diverse situations is essential if you want to maintain financial viability in the face of the unexpected.  Now you have read about two situations where the business owners thought succession planning was only for people about to retire.  Each had no way of knowing they would soon be forced from their business well before retirement age due to situations beyond their control.   Don’t leave your business exit strategy to chance. Make sure you’re in a position to profit – no matter what the situation!

Business succession solutions

Succession solutions exist for all business ownership structures.  A typical small business exit strategy involves arranging a formal Buy-sell agreement with another interested party. This could be with an employee or a colleague already operating in your industry.

For dozens of tips and detailed case studies to kick start your successful business exit strategy  and invest in your future you want to read the book “Your Business Succession…how to enter, exit and execute your business for maximum cash flow and profit”.  If you don’t find a solution to help you with your business exit plan, I will happily refund the purchase price!

How well prepared are you to exit your business with maximum cash flow and profit?

Take the FREE Business Exit Quiz, and receive your own customised report which will reveal the strengths of your business exit plan and uncover any shortcoming that you must address if you want to maximise your profitable outcome from your business when you exit  – through any circumstances.

Here’s to your profitable business exit!
Leigh Riley

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Situational Errors That Prevent Your Exit With Maximum Cash Flow and Profit…

Yesterday I was speaking with a very experienced business motivator about Business Succession Planning.  I was very surprised to learn that she believed Succession Planning was something a business owner would only consider if they were thinking about retiring soon.  I was very quick to point out several reasons, many of them unplanned, that someone would exit from their business (see some of these in earlier blog posts).

51%  of business owners exit their business before to retirement age

You may be just as surprised as she was to learn that 51%  of business owners will exit from their business prior to retirement age, with a large number of exits being due to factors beyond their control, or that they would not have considered possible.

My previous series revealed 8  Business Succession Strategy Weaknesses that prevented business owners from exiting with maximised financial benefits and outcome.  In this series, I’ll identify 6 Situational Errors that prevent business owners from capitalising when they exit their business, particularly when their departure is beyond their control.

Most business owners I’ve met are naturally quite driven and vibrant and it seems almost inconceivable that anything could happen to prevent them from achieving or maintaining their success in business. However, illness can be a major unplanned factor forcing a business owner to leave prematurely. Failing to recognise this is a situational error of judgement that can lead to an unfortunate financial outcome for you as the business owner, your family, customers, employees and suppliers.

Case Study #7 – The Impact of Unexpected Illness On A Small Business Owner and His Family

In my book “Your Business Succession” in Case Study #7 I refer to sole trader Brian, who operated a Mechanic Workshop from leased premises with one apprentice.  Brian earned a very good income that supported his wife, Sue and two children. However when he was unexpectedly diagnosed with a brain tumour at age 38,  his ability to function was swiftly impaired, impacting the viability of his business.

Brian’s apprentice was not skilled enough to continue operating the business without him.  His wife had very little understanding of how to run a business and wasn’t confident enough to supervise someone else to run it either.  On top of that, the business was not generating enough revenue to pay someone to manage it as well as pay Brian’s family the income which they had built their lifestyle.

Impact on Brian’s family and employee

Sue’s distress was two-fold; first due to the potential loss of her husband to their family, as Brian had only a small chance for survival , and second, due to financial hardship that meant their lifestyle was suddenly very stretched.  Sue could not seem to find a buyer for the business due to the transactional nature of it and the reliance on Brian to operate it.   She was forced to terminate the apprentice (whom she could no longer pay), wind up the lease (which cost money to do) and commence liquidation of the business assets (which were sold under fire-sale conditions as she needed money fast).

The financial outcome for Brian’s family could have been quite different had he sought professional exit strategy advice and implemented some simple key strategies.  Until that unfortunate situation arose Brian also had believed that Business Succession Planning was only for people who were about to retire.

Possible exit strategies Brian could have used

One possible exit strategy for Brian could have been to use a Buy-sell Agreement with a pre-agreed sale price based on the valuation of his business.  This would involve a legal agreement with a competitor, friend or colleague working in the industry to ensure there would be an automatic buyer for the business if it needed to be sold.  A simple life policy could have assisted with the financial burden and could also have been used to fund the buy-out in the Buy-sell agreement.

Mitigating the financial loss made in the face of illness was possible even though Brian operated as a sole trader. A Business Exit Plan would have ensured continuity of his business, with continued financial viability for his family, and maintained a job for his apprentice.

Small businesses can be most vulnerable to unplanned exits

The smaller your business, the more vulnerable it can be, so structuring your business with an exit strategy for diverse situations is essential if you want to maintain secured financial viability.  Brian had no way of knowing he would soon be forced from his business due to illness, or that he would exit well before the anticipated retirement age.

How to avoid situational errors of judgement

Don’t leave your business exit strategy to chance.  Make sure you’re in a position to profit no matter what the situation.  Ignoring this situation is to gamble with your future in a manner that could adversely affect you, your family, your employees, the viability of your business, your social standing in the community and your trading partners and suppliers.

Plan the right succession solution for your business ownership structure. One business exit strategy may be to arrange a formal buy-sell agreement with another interested party. It could be arranged with an employee or a colleague already operating in your industry. For your successful business exit strategy, take a look in the book “Your Business Succession…how to enter, exit and execute your business for maximum cash flow and profit” where you will find dozens of options to help you design the best business succession strategy for your profitable exit.

How well organised is your business exit strategy?

Take the FREE Business Exit Quiz, and get your own customised report which will reveal the strengths of your business exit plan and uncover any shortcomings that you must to address if you want to maximise your profitable outcome from your business when you exit through any circumstances.

Here’s to your profitable business exit!
Leigh Riley

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