Finding a suitable business succession solution

No one starts a business with the intention of liquidating it someday.

Unfortunately, this happens all the time when proper business exit planning is not in place. But when should I start my exit planning? Cliché as it sounds, NOW is the correct answer. It can take at least 10 years for a business owner to truly leverage on the opportunities available due to an exit planning strategy. But sometimes, we are not able to exit on our own terms as events can happen unexpectedly. Are you aware of the consequences when you are stricken with illness, disability or death?

Are you a key personnel in the business?

As a key personnel, your business’s worth and credibility is intrinsically linked to you. In the event of your untimely death, creditors such as suppliers, banks and real estate companies will start knocking on your door to demand for payment, as the continuity of your business is now uncertain. Who will be authorized to issue payments or approve documents?

Does your business have a credit facility?

Have you ever wondered why the bank usually requires you to sign twice on your business request for banking facilities? By doing so, you have become a personal guarantor to the loan amount and the bank has the right to seize your personal assets if the business is unable to repay the loan.

Even if the business is growing well, have you given a thought about your own retirement? There are primarily 2 exit strategies:

1. Family business succeesion

Who will be suitable to succeed the business? Is there adequate time for your successor to develop appropriate management and leadership skills? The planning should also include your own ‘lifestyle exit’ by using your company earnings to finance a successful retirement.

2. Selling the business

Would you sell it to a friendly invidiual i.e. your business partner? Will your business partner have sufficient cash flow to buy over your share? If so, at what value? Alternatively, acquisition is one of the most common exit strategies. The sky is the limit when it comes to your perceived value of your business, but who is willingly to pay the price? Capital improvements and staging may be required to make your business attractive to potential buyers. If you want to secure a higher sale price, you have to show better earnings. Much work, from prepping the business, to putting it on the market, to setting aside time for a buyer to review and handle delays due to regulatory issues, need to be done well in advance of your retirement plan.