Workplace

A business exit's most critical element is a business owner coming to terms with his or her retirement and succession. Owners often are emotionally attached to their businesses; a business is not just what you do but who you are.

When I exited my business, I struggled with losing my community identity, as well as my relationships with my team and customers. So when you start considering your business exit, ask yourself: "Am I really ready?"

Objective assessment

Business owners are well-advised to objectively assess how mentally prepared they are to leave the businesses that are such a significant part of their lives.

Honestly answering the following questions can help you determine whether you are mentally prepared to exit your business:

1. How involved am I with the business's day-to-day activities?
2. Do I know how I will spend my time after I exit the business?
3. Are my business-related thoughts and habits so routine I won't know what to do after the exit?
4. Do I view my business as growing and providing a good return on my invested capital, or am I more interested in the lifestyle the business provides?
5. Will I be able to think clearly during the exit process and make decisions based on objective criteria?

If you are deeply involved with your business's daily activities and enjoy that level of involvement, you may want to wait several years before you seriously consider exiting your business. However, you still can start planning for the exit. In fact, planning likely will lead you to make changes to the business to accommodate your eventual exit. If you don't slowly change your daily involvement with the business, the exit difficulties you currently face will be the same ones you face in the future.

On the other hand, if you have removed yourself from your business's daily operations, you likely see the business as an investment, not a job. If you have determined it is time to "cash in," your mental readiness likely is rather high.

The significance

Knowing your level of mental readiness for a business exit will allow you to effectively evaluate your business exit options. If your mental readiness is low, you should design a multiple-year, phased exit strategy. However, if your mental readiness is high, you may want to begin seeking an outside buyer for your business.

After you have established your mental readiness, you can consider the five internal and external transfer options I discuss in "Internal vs. external transfers," March issue, page 50. You also can create a written exit plan to explore those options' implications for your length of employment; financial and strategic control; the transaction's value; and tax and fee implications.

Keep in mind: Your company will be assigned a higher valuation (be worth more) if it has the systems and management team to operate on its own, makes sustainable profits and is in sale-ready condition.

Positioned for opportunity

The past year has been challenging for business owners. Many baby boomers are approaching retirement and would be wise to position themselves to capitalize on their businesses when the next opportunity arises.

Whether you are ready to exit your business today or want to wait several years, you should plan to consider your mental readiness. When you have established your mental readiness, you can determine which options fit your personal needs and circumstances.

Kevin J. Kennedy is president of Beacon Exit Planning, Elmira, N.Y.