IN THE KNOW —
Do you have an exit plan? With an aging population of business owners there is an increasing number that will be exiting their business over the next 10 years. Despite this large number few have a plan on how they will exit, and even fewer still have committed anything to paper. As you take some time off over summer and put down your tools for a while, I encourage you to look at the long term and if you have a plan for life after building. Because of the physical demands of the trade it is often not possible to continue swinging a hammer in your 60’s and beyond. Without putting some long-term planning in place, your exit from the business may be to just close the doors and walk away, hoping that you have enough squirreled away and the 10-year liability you have on recent projects doesn’t come back to bite you. The sooner you start thinking about how you will finance your retirement and the level of comfort you want to enjoy, the more options you will have and the better the outcome will be.
If a trade sale or management buy-out/buy-in are options, you can work on the business from the INCOMING owner’s perspective and reduce the risk for the new owner. Starting to build systems in the busines to replace yourself is a great place to begin. Do this and the sale price of your business increases, due to the risk-reward equation. Increase profitability as well and you multiply the value you will receive.
Like planting a tree, the best time to do this is 20 years ago; the next best time is now. Exiting a business can take many forms. The earlier in your business career you start thinking about how you will exit, the wider your choice will be. Here are some ways that you can exit your business: • Franchise
• Management buy-out
• Public listing
• Merger
• Family succession
• Management buy-in
• Trade sale
• Liquidate
If you are serious about planning the journey from where you are now to where you could (comfortably) be in retirement, I recommend you follow this process: 1. Understand your “magic number.” To fund your retirement goals, you must understand the amount of funds you need to live well into retirement. 2. Understand company value now. A critical piece of information is understanding what your business is actually worth. This can be a rude shock to many because an accountant will take an objective view and not include all the pain and stress you have put into growing your business to date.
The closer you are to retirement the less options are practically open to you. For example, it takes years, if not decades to build a franchise business. Start early enough however, and it is a real option and could provide you with a great stream of passive income. So, have you left it too late to do something? The good news is “probably not”. If you consider your options, put a specific goal in place and implement a plan to reach it, you can achieve a better outcome. Certainly, achieve a much better outcome than doing nothing except buying a lotto ticket each week. It may be too late to build your business into something of real scale, but you can still focus on improving your business’s profitability and then extract those profits and invest in income generating assets in your personal name, or even better a family trust.
3. Conduct a gap analysis and value enhancement. It’s time to quantify the extra value you need to build into your business and implement a plan to achieve it. This might include revenue growth, new customer and industry segments or simply risk reduction in certain areas. You will need a good accountant to help you with this, possibly a lawyer and (shameless plug) a good business coach to work on implementing the plan with you. To talk more about developing an exit plan for you, email me on andy@tradescoach.co.nz and we can book a time.
Andy Burrows, Director of The Trades Coach and NZCB National Partner. I encourage you to take advantage of a free business strategy review session to see how we can improve your business performance. Call Andy today on 027 688 6721 or email andy@tradescoach.co.nz.
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