Family Business Exit Strategies

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During the last two posts of this series, I introduced the concept of different business categories and how each of these will be affected differently when establishing Your Business Succession Plan. 

Business Succession Planning is relevant for every business owner because one day, you will either want to or have to, exit your business. How this is to occur will depend on the type of business you have and the type of outcome you are looking for.

Despite the type of business you have, you’ll want to maximise the cash flow and profits you receive when you exit, whether by planned or unplanned circumstances.  This will be very important if you want the sales proceeds to fund the next phase of your life, or to assist you and your family to maintain a decent living standard after you exit your business.

During the previous posts I discussed situations involving the Sole Proprietor and the Medium-sized Business about how to maximise their outcome when they exit their business. In this final part of the series, I will discuss the succession plan of attack for the family business owner who wants to pass the business on to the next generation.

Typically the family business owner can be the most difficult succession plan to devise, because it not only involves the business value, money and mode of operation in succession discussions, but also the family and its dynamics. 

If you are a family business owner, it is especially challenging for you because, not only do you need to build it in a manner that will make it a valuable asset to set you up comfortably for the next phase of your life, but it must also help you to pass on and assist the next generation (your family) to build sufficient capital and skills to buy and run the business.

However, even If you are like some family business cases, where you have sufficient additional assets to consider gifting the business asset to family members when you exit your your business, careful succession planning is still essential. 

There are substantial tax implications for you when you gift your business to family members, so don’t overlook the opportunity to gain specialist succession advice well before exiting. 

Your family business is just as vulnerable when you fail to take the action to formalise an agreement to overcome the six identifiable succession triggers (Dispute, Death, Disability, Divorce, Desire for change, Decision to Retire). There are plenty of failed family businesses because they rested on the thought that as a family they’d be ok and work out any succession planning issues when the time came.  If anything, the emotion within a family can steer a business in an un-business like manner.  Don’t become the next statistic.

Do you want to know how prepared you are to Exit from your Business?

Take the FREE Business Exit Quiz to receive your customised report. It takes about 2-3 minutes to complete.

You can also Download 3 FREE chapters from the popular book, “Your Business Succession”.

If you haven’t engaged a Business Succession Strategy Team working together for your benefit
it’s time to do so. Click here to Book your FREE 15 minute consultation with the Exit Experts Succession Strategist (only for subscribers of this blog, so please log on to subscribe)

Here’s to your profitable Business Succession!

Leigh Riley

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Medium Business exit strategies

(Read on for your Three FREE offers with this blog post)

In the last post, I introduced the concept of different business categories and how each of these will be affected differently when establishing Your Business Succession Plan. 

Business Succession Planning is relevant for every business owner because one day, you will either want to or have to, exit your business. How this will occur will depend on the type of business you have and the type of outcome you are looking for.

Despite the type of business you have, you’ll want to maximise the cash flow and profits you receive when you exit, whether by planned or unplanned circumstances, particularly if you want the sales proceeds to fund the next phase of your life, or to assist your family to maintain their livelihood.

During the previous post I discussed Category One being the Sole Proprietor and how to maximise their outcome when they exit their business. 

In this session, I’ll concentrate on the second of the business types. If your business fits into Category Two, you’ll be the type of business owner that puts a large portion of your time and money back into your business.

Your goal is to build the value of your business in a manner, that, by the time you exit from it, will have grown to quite a valuable asset. More likely to be a medium sized business, your business is not reliant upon your services within it, because you’ve developed a team of people to fulfil all the tasks that keep it operational,and if you haven’t already, you are more likely to be developing a management team to oversee it.

Your succession plan will be different because your most ideal successor is probably already working in your team.  Usually they will be familiar with the business clients, systems and processes, products, services and suppliers, so this part of the succession plan becomes a lesser issue when passing on the baton.  

Your succession strategy can encompass many more options than that of the Sole Proprietor, but is no less vulnerable if you don’t take the action to formalise an agreement that overcome the six identifiable succession triggers (Dispute, Death, Disability, Divorce, Desire for change, Decision to Retire).

Due to the size of the valuable business asset you have built, funding the eventual buy-out will usually be a larger problem to overcome.  As a business owner wanting to extract your business wealth in cash, you will need to think outside the square, and a lot earlier, to ensure your potential successor has the financial capacity to pay you your rightful entitlements. This has become more of a problem in a market place that is inundated with tough financiers who severely scrutinize loans on business transactions and acquisitions.

Quite often business owners in this category are aged between 40 to early 50s, and don’t have a lot of personal assets, but tend to have more debt commitments because all available financial resources have been poured back into the business.  If you can relate to this scenario, it makes it more crucial for you to lock in a business succession strategy, that will release you of your debt commitments and protect your interests in a way that will maximise your financial outcome.

Do you want to know how prepared you are to Exit from your Business?

Take the FREE Business Exit Quiz to receive your customised report. It takes about 2-3 minutes to complete.

You can also Download 3 free chapters from the popular book, “Your Business Succession”.

If you haven’t engaged a Business Succession Strategy Team working together for your benefit it’s time to do so. Click here to Book your FREE 15 minute consultation with the Exit Experts Succession Strategist

In the next blog, I will discuss the third category type for succession planning which is the Family Business.

Here’s to your profitable Business Succession!

Leigh Riley

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Succession Planning is relevant for every business owner because one day, you will either want to or have to, exit your business.

It is normal for you to hope to sell your business when you exit, and the chances are, you will need the sales proceeds to fund the next phase of your life, or to assist your family in maintaining their livelihood.

How this will occur will depend on the type of business you have. In my experience there are generally three main business categories, and each will require a different approach to their succession planning. This blog will be written in three parts to focus on each of the three main categories, with the first of these being

Category One: Sole Proprietor.

If you fit into the first category, you will have a business that relies on your sole capabilities. For example, if you are a consultant or independent professional (such as a lawyer, accountant, doctor, etc), your business is likely to be the mechanism to sell your expertise and generate your income.

In this situation, you are likely to have a client base that can be sold when the time comes to leave, however the business book alone may not generate the sort of financial outcome you had hoped for.  This could leave you short of cash to fund your retirement, or leave your family with a lowered living standard if you leave under stressed circumstances.

If you are to improve your financial prospects when you leave your business you will want to build an asset with a reliable recurring revenue stream that is not entirely reliant upon you (see the concept of building your
business to the “Three Dimensional Zone of Value” discussed in the book “Your Business Succession” because this will yield the most profitable outcome for you when you exit. 

If you aren’t sure how to achieve this, you may want to engage a business succession strategy team to assist you (book your free 15 minute consultation), so you can maximise the cash flow and profits you receive when you exit your business.

Building your business value, is only part of the succession plan you want to build, because you will also want to identify your successor to establish agreed terms that secure your position through both planned and unplanned circumstances. 

If you are to profit the way you had hoped, your successor will need time to  be introduced to your clients, staff, business processes, suppliers etc, so the earlier you can set up the arrangement, the better your outcome will be.  Successors who have been given time to establish relationships with these key areas of your business will usually be prepared to pay a higher price for your business because it is more likely the clients will stay on.

If you are not prepared to take the steps to build your business succession plan in this way, you will want to ensure you are building a nest-egg aside from your business to ensure you achieve the financial security you’d always wished for.  You may want to engage a financial planner to assist you in building an asset base away from your business.

Discover how prepared you are to exit from your business?

Take the FREE Business Exit Quiz to receive your customised report. It takes about 2-3 minutes to complete.

You can also Download three FREE chapters of the books.

If you haven’t engaged a Business Succession Strategy Team working together for your benefit it’s time to do so. Click here to Book your FREE 15 minute consultation with the Exit Experts Succession Strategist (only for subscribers of this blog, so please log on to subscribe)

In the next post, I will discuss the second category type for succession planning.

Here’s to your profitable Business Succession!

Leigh Riley

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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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January is almost over and by now you have probably had enough time to think about what you plan to achieve for your business in 2011.

Historical example of a powerful family’s succession plan

If you’re anything like I am, you’ve mixed your business planning time in amongst some recreation time, and been to some movies.  If you haven’t seen it already, I can highly recommend you check out “The King’s Speech” starring Colin Firth and Geoffry Rush.  It’s an unbelievable, but true story of unexpected succession thrusting the stuttering, ill prepared Prince Albert to the forefront of the British Monarchy after his brother Edward VIII abdicated, having served less than 11 months as King.

Poor Albert was forced to assume the role of King George VI (they changed his name from Albert because it is a German name that was thought to be unpopular given the political rise of Hitler).  The underconfident Prince went into overdrive attempting to prepare himself for the business of being King of England and to fill the large shoes his father George V had once worn.  He had many fears to overcome, particularly with his speech delivery; and given his life long stuttering problem, he definitely didn’t feel up to the task.  But his royal duty was calling so he had little choice.  Undoubtedly it caused him a great deal of distress, but fortunately despite his lack of confidence, he did in fact have the qualities that enabled him to become the great King George VI.    The outcome could have been quite different had Albert not had the ability to rise to the occasion.

I have to wonder how many of you may be leaving yourselves open to potential failure due to a poor choice or no choice or strategy for your business succession.  Just how well prepared are your successors to fill your shoes should you suddenly leave your business.  What kind of solutions have you put in place to ensure the continuity of your business along with assuring your own financial success?  Will your legacy live on beyond your reign?

Even if you have your succession plan in place, how well prepared are you and your business to cope with the unexpected and unplanned events that may force a space at the helm of your business such as the one experienced by the royal family in this story during 1936?  Have you chosen your successor by virtue of a formula such as ‘leave it to the eldest child’ as is the practice of the British Royal family?  Or have you taken the time consider who may be best prepared to takeover for the better of the business?

Succession planning should position you and your family for the best financial outcome through any circumstances.

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

You can learn a lot more about the essential attributes of a successful succession plan in my book “Your Business Succession“.  But before you invest in your business future, you may like to assess just how well positioned you are by taking the FREE customised assessment I’ve designed especially for you to determine how well prepared you are to exit your business.  Simply go to www.BusinessExitQuiz.com The quiz takes about 3 minutes to complete and then I will provide you with feedback about the areas you need to focus on to ensure your most profitable outcome when you leave your business.

If you would like to know more, you can email me your questions or be brave and call me direct … I’ m expecting your call on 1300 499 225.

Here’s to your Profitable Business Succession!
Leigh Riley

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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