Every Owner Leaves – The Question is How?

By Jack Ellsworth

We have been dealing with business owners for many years and if there is one thing that we have learned about business owners it is this:  no two business owners are exactly alike.  Each business is unique in some way or another and each owner faces his or her own particular set of circumstances and challenges.  Yet, despite this fact, we have found one area where 100% of business owners are completely alike:  all business owners will ultimately leave their businesses – it is inevitable.  The question is “how?”  How will you leave your business and how can you prepare for this unavoidable event?  Let’s look at six possible transition or “exit” scenarios:

Sale to a Third Party

Many people do not engage in succession planning because they assume that an unsolicited buyer will eventually show up at their door and buy the business for a great price.  This happens, but not very often.  What if they show up too early or too late?  What if they don’t show up at all?  How can I make it more likely that someone will want to buy my business?

Sale to Co-Owner

Many assume that the business will ultimately be sold to a co-owner.  What if your relationship falls apart?  What if your co-owner become sick or dies? Planning for a transition to a co-owner in advance, having a good buy-sell agreement in place and accounting for the unexpected can help make this process more successful.

Gift to Child(ren)

Many business owners plan to give their business to one or more of their children.  This seems simple on the surface but it can get very complicated and messy when you get into the details, causing a lot of family and business strife.  How do you divide the business between children?  What about children not active in the business?  Who is in charge?  Is making equal gifts of the business to multiple children fair?  How do you reward one child’s contributions to the business’ success compared to another?  What if you want the kids to assume the business but can’t afford to give it to them?  Transitioning a business within a family takes very careful planning to preserve the business and the family.

Sell to Employees

A lot of us really want to see our employees carry on the business.  One big problem is that they usually have no money to buy it.  With advance planning done very carefully, this can be successfully accomplished.  Those who do not plan in advance have difficulty making this type of transition happen.

Close it Down

Sometimes, businesses are not transitioned at all and they simply shut down.  In some cases, it cannot be avoided and the owner accepts this fate.  In many cases, however, this is not the best outcome and it can be avoided with advance planning by the business owner. 

Die

Sometimes, business owners die while they still own and operate the business.  What happens to the business now?  What about the owner’s family and employees?  Whether the business owner dies unexpectedly at an early age or whether the owner lives a very long life while remaining the owner until the end, transitioning a business at the owner’s death can be very difficult if the ultimate transition of ownership and leadership was not properly planned for in advance.

Summary

If you are a business owner, you are GUARANTEED to leave your business one day – probably under one of the above six scenarios.  And let’s face it – some of these scenarios are more attractive than others.  Those who plan in advance have the opportunity to choose the scenario that works best for them and work to accomplish a successful transition on their terms.  Others are more likely to end up under a scenario that they would not have chosen.  Why not start planning today, take control of the process, and determine the scenario under which you make your inevitable exit? 

Contact us more information on Cottrill Arbutina’s Business Succession & Exit Planning or for a complementary consultation.