Wednesday, September 4, 2013

Exit strategy

When Beth and I started E&S, our exit strategy was to close the doors once we were ready to retire.  We didn't think the business would ever stand on its own so we had no plans to grow the business to where it would be a saleable asset.  The business has grown much more quickly than we expected and with several kids in college, we frequently get asked if one of our kids will take over the business some day.  Thus far, none have chosen to major in accounting or finance but we each have a freshman this year so who knows?

Every business owner should be thinking about his/her exit strategy whether they are just opening the business or have been operating for decades.  Your business changes with every passing day as do you so your exit strategy may change as well. 

How you manage your business will change depending on what your exit strategy is.  If you plan on selling your business, you will be more concerned about showing a profit versus keeping income taxes to a minimum.  Tax preparers are focused on minimizing what you will pay in income taxes, which is great unless you want to sell your business and their tax planning has resulted in the company just breaking even every year.  A business which has consistently shown minimal profits is not very attractive to potential buyers. 

You will also want to have sufficiently sophisticated accounting and sales systems to impress a potential buyer.  Having good systems in place takes time so knowing you may want to sell the business some day will allow you the time to develop your systems, procedures and your business. 

Another thought is bringing an employee into the business who can one day purchase it from you.  For this to work, you will need to be watching for an employee who has the skills to not only carry on the technical side of the company, but the business side as well.  They will also need to have good personal financial habits so they will have the money and credit rating to purchase the company when the time comes.  Giving the employee room to grow and develop and planting the idea of buying the business will take time and planning.

Take time as part of your annual review of your business to think about your exit strategy and determine if you are on the right path.  Beth and I will probably just close the doors on E&S some day, but maybe there will be another Schuldes or Ehlers interested in continuing E&S!

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