If you’re like most business owners, you’ve put your heart and soul into your business. It’s probably one of your most valuable assets. It’s where you turn as your income source, the everyday income that the business generates. But what you might not realize is that your business has another potential income source—the money you’d potentially make when you sell your business.

Most business owners have a laser-beam focus on the everyday income and don’t really have a plan to sell their business at a time when they would most likely reap the highest reward. Your ability to successfully exit your business may make a dramatic difference in your life and that of your family.

As a business owner, is it your current plan to own your business forever? And by forever, I don’t mean the foreseeable future. I also don’t mean until you are disabled or dead. I mean forever–as in for all eternity.

A recent Gallup Poll found that 52% of small business owners planned to leave their business in 10 years or less; 30% planned to leave their business in 5 years or less.

Perhaps we can all agree that whatever answers one may give to Mr. Gallup and his polling gurus, 100% of business owners—that means each and every one of you!—will eventually exit your business.

Your timing expectations may be reasonable, and your 10-year prediction may turn out to be reasonably close. But then again, your expectations may be thrown out of kilter by various unexpected contingencies—a family emergency, personal health problems, some catalyst that comes upon you by surprise—and you may need to exit well in advance of your initial expectation.

Case in point, I received a call last week from a business owner who had just decided to sell her business. Her lease was running out in a month, and she thought selling before the lease ran out would be a good idea. Maybe she was right – that might have been a good idea. Two years ago, her business would have had substantial value. But, her business was down (not surprising, given the current economic circumstances), and there was not a chance in the world, at any price, to sell her particular business in a way that would allow closing in 30 days. I had some ideas for her, but she will probably end up simply shutting down the business and closing its doors, something that this owner surely did not expect or want as the result of her hard work.

IT IS NEVER TOO EARLY TO BEGIN EXIT PLANNING!
Without trying to be comprehensive or overly precise, let’s agree for now that exit planning is simply thinking through issues related to exiting the business:

1. Timing,
2. Form of transfer,
3. Tax-related consequences, and
4. Strategies you can implement in your business to reach the goal you’ve set.

I haven’t included price in the list, but the consideration you take out of your business is the key issue for the overwhelming preponderance of business owners, and it will often drive these other issues. There are no cookie-cutter approaches to exit planning, just as there are no one-size-fits-all approaches to anything relating to business transfers. In some circumstances, effective exit planning need not be exhaustive and involved. Or, for certain other businesses, it may indeed need to be comprehensive, involving the expertise of various professionals.

For example, a small business may only need a brief discussion or two with a business broker to get a sense of value, as well as to find out what issues detract from the business’ potential salability and what steps can be taken to correct those issues. A larger, more complex business, on the other hand, may need several advisors for effective planning, including one central advisor to quarterback the process, perhaps a credentialed Exit Planner. Accounting, valuation, legal, human resources and tax professionals may also be among the experts included in the team.

At the same time, there are some basics that almost any business owner can consider implementing because they make any business more salable. This list is not intended to be comprehensive or to apply in all circumstances. It’s simply a set of ideas that any business should consider: (1) Keep your books accurately; if you’re not reflecting your sales properly, or if you are deducting personal expenses from business income, your ultimate sales price may very well suffer; (2) Try to create systems and written processes – even simple ones; don’t rely purely on the expertise and gut of one person; (3) try to avoid customer concentration and instead expand to a larger customer base; (4) Don’t make the business all about you. Train your employees give them customer responsibility and operational responsibility. When you leave the business, a buyer will feel more confident that things will go forward smoothly; (5) consider buying key man life insurance or other insurance to allow your business to move forward even in the event of an unforeseen tragedy. There are some innovative products out there, and they may allow your family to maintain the business while attempting to sell it, instead of simply closing the doors.

The potential payoff to you of engaging in exit planning in increased returns from the sale of your business (or by achieving whatever other goals you may have in mind) can be enormous!

Your exit from your business will happen. We can’t know for sure when it will happen. But, you should and must take steps to avoid it taking you by “surprise.”

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Bruce Deerson, President and founder of Entrust Associates (a Raleigh, North Carolina-based business brokerage), is a lawyer and has previously served as Corporate Vice President of a NYSE company. He has been involved with hundreds of millions of dollars of business transfers of all sizes. He is an Arbitrator on the commercial panel of the American Arbitration Association, and is a certified mediator in North Carolina.

Olga Kennedy is the Director of Operations at Entrust Associates. She has a Masters Degree and has served in various roles largely focused on communications in both large and small businesses. Her experience in marketing communications, in coordination with her knowledge of process, allows her to effectively liaison with sellers and buyers in their business transactions.

Entrust Associates works with business owners to evaluate exit options and, if appropriate, assists owners in selling their businesses.  Entrust may be found on the Web at www.EntrustAssociates.com or can be reached by phone at 919.881.9997.