E Planning Your Exit: Thinking Long-Term Keeps Your Business On Track

You've navigated a competitive market, steered your company to profitability, and put it on track for healthy growth and expansion. It’s now time to start thinking about an exit strategy.

Sound premature? It’s not. Proper planning can help ensure both a successful business transition and an equally successful retirement for the owner.  Too often, owners get caught up in the day-to-day operations and forget to think long-term. Some figure they’ll simply turn the business over to the kids. Others plan to sell when it’s time to retire and live on the proceeds.

But often the kids don’t want the business, and finding the right buyer might not be easy, particularly these days when capital is tight. Those who do find a buyer may end up agreeing to an installment sale, which means they’ll likely get the business back if the new owner goes broke. A boomerang sale is a headache if the business comes back when you’re young, but it can be a disaster if the sale is a critical part of your retirement.

That’s why owners who want to get full value from their business need to think ahead. Succession planning should start as soon as an owner is able to move beyond tactical day-to-day operations, and to think strategically about the business, as well as his or her own role in the company’s future.

Consider Barry Middleman, now 71, who founded his architectural firm back in 1973. He was still in his early 50s when he first began his succession planning. He started by crafting a new identity for his business. In 1994, the firm shed the name Middleman, De La Garza & Neugebauer and became MDN Architects.

“A personal identity drives down the value of a company,” Middleman explains. “It is not as marketable.”

At about the same time, MDN began working to seriously diversify its client base, once again increasing the company’s value. Then two years ago, a new partner came on board, dramatically lowering the average age of the partners. Now Middleman is planning to gradually step back from the business, staying involved in those areas that interest him most. Eventually, he says, he’ll retire, leaving the new partner at the helm.

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Disclaimer: The information provided is not written or intended as specific tax or legal advice and may not be relied on for the purposes of avoiding any Federal tax penalties. MassMutual, its ...

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