Most entrepreneurs are so excited about starting and growing their businesses, they often forget the end game until it’s too late. Proper exit planning can help maximize the value of your venture, minimize the tax consequences of the transition and allow the business owner to control the process.
Here’s a sad but all-too-common story about a hypothetical business – Stevenson Consulting – to illustrate our point:
Mike and Bill Stevenson were two owners of a thriving IT Consulting company. What began as a business planning meeting quickly turned into a discussion about: “We’re getting out of business, how do we do it?” As successful as they were, they were tired of staff issues, changing technology, and the day-to-day grind of running a multi-million dollar company.
A sale to a third party was not an option because Mike and Bill were not willing to stay on after a sale. And they had failed to develop a strong management team, which any savvy purchaser would require as a condition of purchasing the company. Transferring ownership to a group of key employees was also out of the question. None had been groomed to take on this type of responsibility and nothing had been done to fund this type of buyout.
Neither owner had children who were experienced enough to take over the business, so their only remaining option was to liquidate.
Mike and Bill’s highly profitable company had little worth beyond the value of its tangible assets. After the sale of those assets, dozens of employees lost jobs, the business disappeared, and Mike and Bill left millions of dollars on the table.
You’ve put your energy and your capital into building a business. This business most likely accounts for more than 90% of your net worth. Why not protect that investment so that it can be monetized on your terms?