Elements of a successful business exit plan

Liquidate the business?

You can liquidate your business. This is often the default option for those who have not planned for how to leave the business. In almost every instance, business liquidation, whether it be controlled or forced, is not the best way to leave your business. You will often be left with less money and have more trauma along the way.

A better option is passive ownership. Every business owner should consider passive ownership as a logical step along the path of exiting the business.

Passive ownership as an option

Passive ownership is where the selling owner completely gets out of the day-to-day operations of the business. A passive owner will have to install systems in the business that allow others to know what’s important in running it.

Third party buyers aren’t interested in the selling owners, but they are interested in having people on board who can run the business. If the owner has made the transition to passive ownership, they will often receive more money for their business than if they continue to be involved in every aspect of that business.

There is no way to test managers to see if they can run the business until you’ve become a passive owner. If you’re still making all the key operational decisions, you will never know how good the next generation of owners is.

When an owner becomes a passive owner, they have the time and energy to concentrate on strategic issues that make the business more valuable. This is the key to a successful transition.

It’s your turn. Decide how you want to go through an exit process in your business. What are the steps that you think are most important?

Take one of those steps and put an action plan together. Starting a process will lead to more steps.

The more exit planning steps you take, the better the outcome is likely to be.

About the author

Josh Patrick is a wealth manager specializing in working on issues with private business owners. He is a CFP^® holder and has helped over a thousand business owners with strategic advice aimed at increasing the enterprise value of their businesses. He can be reached at 802- 846-1264 or Jpatrick@stage2planning.com. Visit his blog on his Website at www.stage2planning.com/blog for musings on the state of enterprise value and the private business owner.