Exit Plans Do Not Always Require A Sale
So what else can you do besides selling? What constitutes a successful business exit? A few examples, which does not need to include selling everything to strangers as part of your plan:
- All in the family: The Tuttle family, of Dover, New Hampshire, kept a dairy operation going for 11 generations, selling only after 380 years of family business management. This may be possible for one, two, or more generations in your business, too, if family members can be found who have the skills and interest to run the place. Only about 1/4 of families sell out in each generation, according to SBA statistics. Successful plans pay fair value to and retain active participation by the departing generation, while keeping younger family members in the pipeline and actively working in the business.
- Employee Owned: The people who do the work are often the ones best qualified to keep a shop going. How does this work? In a traditional example, lawyers used to be prohibited from selling their practices, so they brought in junior partners and eventually transferred active accounts to them, while using continuing income before and after transfer to pay for some kind of pension plan. These day, you can choose from among many tax-advantaged ways to do transfers to employees, such as employee stock ownership plans.
- Third Party Lifestyle Guarantees: Tax sheltered investments, life and disability insurance insurance (deductible as “key man” or “business interruption” or other policy premiums, if the company is buying out owner shares), business interruption insurance, and many other financial products exist that can help, if enough is set aside from profits to cover savings plans and insurance or annuity premiums, with products purchased in amounts sufficient to take care of you or your dependents.
If you have questions about family business transitions, or other successful exits, give me a call at 1-800-630-4780 or email me at firstname.lastname@example.org. The first call is always free.