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Selling your business: Think ahead


April 7, 2010
by Jason Kwiatkowski

Forty per cent of boomer business owners plan to retire over the next five years. The savvy ones are planning their exit strategies now.

Photo: iStockphoto

Thinking about selling your manufacturing business and spending more time on your golf game; or perhaps pursuing other business interests? Start formulating your exit plan.

Consider that front-line baby boomers turn 65 next year. Among them are business owners who are driving the largest transfer of private wealth in history. Forty per cent of boomers with private family businesses intend to retire within the next five years. Many are relying on the proceeds from the sale of their companies to fund their retirement, yet as more boomers put their enterprises on the market, the growing supply of businesses will exert downward pressure on sale prices. This translates into lower returns and more stress.

The number one reason business exits fail is lack of planning. Too many owners are reactive—forced to sell because of burnout, health issues, marital problems or business conditions—and these types of fire sales leave too much money on the table. On the other hand, owners who invest time and make the effort to prepare ultimately sell their companies for a significant premium.

Control timing
If you intend to sell your manufacturing business in the coming decade, you need to prepare well in advance to control the timing of the sale and to maximize net proceeds. Here’s an approach that can help you do this.

First, planning should begin several years prior to a sale. In a Newport Partners survey of more than 100 Canadian business sellers, 62% recommended methodically pre-planning the sale of a business two to three years in advance. However, less than 25% actually did so themselves.

Properly preparing a business for transition begins with a formal exit plan. This document sets out the steps that must be taken to accomplish your goals, and addresses all the business, personal, financial, legal and tax issues involved in transitioning your business to new owners.

The benefits to having a formalized plan include:

• Achieving your business and personal goals.

• Retaining control over how and when the business is exited.

• Maximizing company value in good times or bad.

• Minimizing, deferring or eliminating capital gains taxes upon the sale of the business.

• Reducing stress and tension among family members and employees.

To be effective, an exit plan needs to integrate these components: