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An Entry Into Exit Planning

By: William J. Lynott
Posted: October 28, 2011, from the November 2011 issue of Skin Inc. magazine.

Although there is no way for you to know when you will have to part company with your business, you can be certain that it will happen. That leaves only the question of how you will take your leave.

John H. Brown of A&W Tax Service Associates in Brooklyn, New York, a professional exit planner, says he knows of only eight ways to leave a business.

  1. Transfer the business to a family member.
  2. Sell it to one or more key employees.
  3. Sell to key employees using an employee stock ownership plan (ESOP).
  4. Sell it to one or more co-owners.
  5. Sell it to an outside third party.
  6. Engage in an initial public offering (IPO).
  7. Retain ownership but become a passive owner.
  8. Liquidate.

Chances are that one of these paths is best for you, but which one? Whether your retirement is just around the corner or years away, you owe it to yourself to consider these questions right now. “The No. 1mistake in exit planning is waiting too late to begin,” says exit planning professional Greg Austin, CPA, of Business Enterprise Institute, Inc. in Golden, Colorado. Waiting until it’s too late to do a thorough job often forces owners to sell their businesses at a disadvantage.

Your exit plan will affect your business plan

Let’s say that your retirement plan includes the hope that you will be able sell your spa to an outsider or competitor for a tidy sum. In that case, do everything possible to build the market value of the business. That may include such tactics as making capital investments in facilities or equipment, and creating marketing plans designed to ensure steady growth.

And don’t forget your own financial needs. If you expect to add to your retirement fund with a hefty chunk of money from the sale of your business, that could be a problem if you decide to sell to a family member, or even a partner or employee. Where will that money come from? If the buyer can’t come up with it, an expensive loan could prove to be a roadblock to the sale.

Will you disappear or stick around?