Spinnaker Trust
Drew Oestreicher
Updated: October 31, 2022
How To
How to determine whether you’re ready for the exit
By Drew Oestreicher
Small business owners are rethinking retirement timelines, whether it’s because they’re worn down by the pandemic, are affected by the relentless pressures of inflation and the labor shortage, or because they’ve been jolted by a health scare.
Even then, just because you’re personally ready to step away from the helm doesn’t mean your business is.
It takes time to evaluate the variables that determine whether you and your business are ready for your exit. The more runway you give yourself the more options you’ll have, and the more peace of mind you’ll ultimately have with whatever decision you make. Here are some things to consider.
1. Figure out who will take the helm
Think through the pros and cons of all your succession options, whether you’re considering transferring ownership to a family member, selling to an outside buyer, converting to an Employee Stock Ownership Plan (ESOP), or working with a strategic buyer like a private equity firm. Whatever the ownership structure will be, you’ll want to think through who would lead business operations on a day-to-day basis. Who are the key members of the staff and management that will ensure that customer relationships, institutional memory, company culture, and know-how endure after you’re gone?
2. Determine what it’s worth
Often what an owner thinks his business is worth is out of whack with what the market will pay. Factors like tax policy and interest rates can have a huge impact on how much value a business ultimately will have on the market. Timing, of course, is everything. Often business owners want to sell during the company’s worst year, when they would be able to get a much higher sale price if they waited until the business was thriving. The only way to truly understand the resale value of your business, and the constellation of factors that will impact value, is to get an independent valuation by an accredited business appraiser. The process of gathering your financial statements, forecasts, and information about operations, customers, suppliers, and competitors, will provide peace of mind no matter what the future holds. Getting a clear picture of what your firm is worth may help you clarify your next move. Look for designations like Accredited Senior Appraiser (ASA), Certified Business Appraiser (CBA), and Certified Valuation Analyst, which indicate that the person has the training and the experience to get the job done.
3. Invest in success
The results of the valuation will clue you in on what types of investments you need to make in equipment, processes, technologies, and executive leadership to maximize the value of your business. No matter what your timeline is, making these investments will help the business thrive in the short term, and set it up for a successful future.
4. Consider your afterlife
For a lot of business owners, personal and professional finances are closely intertwined — many business owners don’t even realize how much they depend on the business financially. Will you need to make adjustments to your lifestyle after the sale, when you’re no longer taking an income, writing off business expenses, or driving a company car? Think about what you want that chapter to look like. Do some financial planning to make sure you can get the retirement you hoped for.
5. Work with a quarterback
It’s unlikely that one individual will have expertise in every area that you need to consider as you think through your exit. You’ll need a lot of different specialists in areas like taxes, insurance, valuation, and personal financial planning. Partner with a trusted advisor who can work as a quarterback to bring all these specialists together, help you process all the information they provide, and help you come up with a solution and an exit strategy that works best for you.
Drew Oestreicher is senior vice president and senior client advisor at Spinnaker Trust in Portland.
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