Many small business owners haven’t taken the time to decide how to exit their business. Let alone, have they decided what to do in case of an emergent, unplanned exit. Exit planning for small business owners can be challenging and a bit scary, so let’s take some of the mystery out of it.
Warning: this post has a lot of questions in it to get you thinking.
First, let’s look at the big picture and your end goals. Why are you doing this? Why do you fight the good fight of business ownership?
Is it to make a living for now and save up money along the way? Or, are you trying to create a business to sell to help you in retirement? Is there someone you want to run it, while you act as CEO doing the bare minimum in your retirement? Do you want to hand it down to your kids? Do you want to work in it until you die or until you tire of it? And then what? Do you have instructions for those left behind on what to do? Is bankruptcy the long-term plan? (It is a real plan for some!)
So many times in our businesses, we are going from one thing to the next without thinking of the big picture outcome. But, without that long-term vision or goal, you risk not ending up where you want to be.
Exit Planning for Small Business Owners
Getting to the meat of this, very few end games have the different steps outlined to work toward as you are growing and running your business. But, most of them require clean finances, repeatable processes, and for you to not be the only reason the company runs.
Beginning with finances, you should have a bookkeeper or CPA (maybe both!) review your books to make sure you are set up correctly. I highly recommend using a software tool to manage your finances, such as Quickbooks Online.
Secondly, establish repeatable processes. Type them up and store them in a centralized location where your team all has access to it. We talk a lot about process at Beyond the Chaos and we can help you with this part. You will need to establish processes for every part of your business.
Lastly, you need to be replaceable. Whether your children are to replace you, your spouse, or a new owner, you can’t be in the day-to-day. You can’t be what makes it run. In all likelihood, the business can’t rely on you for your connections or your reputation to keep going. The business itself can have connections and a great reputation, but it can’t be all because of you personally.
The side effect of these steps is that your business will run better and more profitably now. You might even be able to exit before you expected!
Now that we’ve reviewed a planned exit for small business owners in the long-term, let’s jump into when you have to exit urgently – and unexpectedly.
Part of being a business owner means that people rely on us. Our team. Our clients. Our vendors. Our families. What happens if you are hit by the proverbial bus? Or are stricken with a long-term illness? Not fun to think about, but it is very irresponsible not to. Sort of like not having a will when you have children.
Your business will automatically go to your spouse or next of kin if you haven’t made other plans for it. If you have a partner, your partner’s wife or brother could all of a sudden be in business with you!
Worse yet, what happens if you and your spouse die together and you have no partner? What is the business continuation plan? Does next of kin even know that you need to run payroll Friday?
It’s imperative to create a continuation plan. Make sure your family knows who to contact on your team – and how to make contact! You want your team – or at least who you designate to be the main contact – to be aware of the continuation plan as well. What are the important passwords? Who does payroll? How do you get to the bank accounts?
This continuation plan should also include information in case of natural disasters to get the business back up and running again quickly.
If you have a partner, be sure to discuss the continuation plan. It might be necessary to get a lawyer involved to ensure that everything is set up the way you want it.