Business owners should have a road map in place long before they actually leave

As a business owner, have you thought about how you’ll leverage your business to get the cash flow you’ll need for retirement? Do you understand how economic fluctuations like a recession could impact or delay your retirement plans? Do you know when (or how) to start planning your business exit strategy?

It’s likely that your business is your biggest asset. It’s very important to maximize your company’s value to help fund your retirement, whether you plan to retire in five years or 25. It takes time to properly prepare for a smooth, seamless transition, as you’ll need to put your business in order, put the right people in place and reduce company debt. The first step to a successful company sale is to develop a smart, strategic business exit and retirement income plan.

Therefore, business owners should:

• Work with an expert. Talk to a certified business exit-planning expert that understands how to navigate the process and will consider your individual financial goals and circumstances. An expert will help you assess different options and develop models outlining the best possible paths for your long-term financial health.

• Build a plan that works no matter what. Planning for market volatility doesn’t just mean thinking about stock market fluctuations. Since no one knows what will happen in the future, build a plan that works no matter what. And recognize that, with the right plan in place, external factors (like a recession) may delay your retirement plans but won’t derail them completely.

• Start early. Even 25-year-olds who are decades away from retirement should start accumulating savings outside their business now to prepare for the future. Start exit planning at least five to seven years before you anticipate selling your business.

• Avoid putting all of your money into your business. It’s important to build cash outside of your business with investments and savings. Without this, you’ll face extra pressure to secure the best price for your business sale. Conversely, if you’ve built a healthy savings, your business exit decisions can be based on factors other than solely price.

• Clean up your company’s cash flow. It’s common for business owners to run their lifestyle through their business, funding things like their company car, country club, cellphone and travel through their company. These businesses might not be maximizing their profits, which could deter potential buyers. Your expenses could be the difference between an attractive business that people want to buy or one that potential buyers overlook because it’s less profitable. Work with a professional to clean up your cash flow to ensure that your business is viewed as a good buy. Also, document all incoming and outgoing financials, including expenses, invoices, payroll deductions, employee benefits, investments, etc., so that you can share clean, organized financial records with potential buyers.

• Let your future plans guide your decisions. When you develop a business exit plan, it helps keep your “end game” top of mind to guide your business decisions. For instance, if you anticipate selling your company in the next 10 to 12 years, your goal-setting and decision-making should move the needle towards that anticipated outcome. To prepare the company for this future sale, your decisions should aim to maximize profits, minimize losses, train high performers for leadership roles, etc.

Focus on these plans and don’t get lost in the weeds of the daily business minutia.

• Anticipate worst-case scenarios. While it’s not pleasant to think about, it’s important to consider what will happen if you have a forced, unexpected early departure from your company. An involuntary exit strategy, which should be developed as part of your business exit plan, covers possible outcomes like your death or incapacitation. This document should outline next steps to successfully transition your business on an earlier-than-planned timeline.

• Remember to sell, not close, your business. People may think that it’s not worth it to sell if they’re not running a multimillion-dollar business but, regardless of your industry or bottom line, your reputation, customer list and employees are all worth something to the right buyer. Don’t leave money on the table.

When you started your company, you likely put tremendous thought into your launch plan, and when you leave the company, you’ll also need a strategic plan to maximize your profits and minimize business disruption. Proper business exit planning is essential to protect your future financial health and the health of the business you worked so hard to build.

Joseph H. Guyton is principal of The Guyton Group, Portsmouth.