Guam Business Magazine

Cover
May - June 2013 Issue

FORUM

five tips for exiting your business
By Rodney Webb

Nothing stays the same forever. Family and business circumstances change over time and hard choices have to be made. And one of those choices may be to exit your business. Unfortunately, many small business owners have no exit strategy. The decision to part with their business then becomes a forced one — due to retirement, disability, or death.

In planning your business exit strategy, here are my suggestions:

Invest in yourself. Just like your employees, make sure that you invest in a retirement plan, life insurance and key person insurance — all of which will protect you and your family from a worst-case scenario until you are ready to exit your business.
Implement a Succession Plan. Before Mike O'Neill announced his resignation as chief executive officer of Bank of Hawaii in 2004, he required that a succession plan be put in place for every senior executive in the bank, including himself. The result: negligible change in the share price when he stepped down.
A succession plan ensures the continuity of the business if something should happen to you, preserves the value of your business relationships and acts as an insurance policy for stakeholders such as banks and external shareholders.
Start planning well ahead of time. A clearly defined exit strategy aims to provide the optimum route to realizing either the highest market value or the best possible outcome from the sale of your business. Don't wait until the last minute.
As a rule of thumb, if you intend to exit via a private sale of your business, you should plan up to five years ahead of time — so that you can present at least three years of clean, consistent financial performance to a potential buyer.
If you intend to pass the business on to a family member, you should plan up to 10 years ahead of time. Depending upon the strategy involved, advance planning is needed to minimize the costs and taxes involved. Professional accounting and legal services will also be required.
Know how your business is doing. If you don't know the answer to the following questions about your business, then you are not ready to sell your business:
Are revenue and profits stable, increasing or declining?
Is the industry stable?
What is my competitive advantage?
Is too much of my revenue dependent on one or two customers?
Is my lease transferable?
Would a bank lend a buyer sufficient money to buy my business, or would I have to hold a note from a buyer?
Maximize your business value. Over the time period leading up to a planned exit from your business, you should aim to increase income, improve asset quality and clean up any potential liabilities. Specific steps you should consider include building business value by creating unique products, services, customer relationships and distribution channels, reinforcing your business brand with an appropriate marketing plan and expanding your customer base.

Rodney Webb is the proprieor of Small Business Knowhow. He can be contacted at 488-7738, or online at www.smallbusinessknow-how.com.