Thinking Through The ‘No-Sell’ Exit Strategy For Small-Business Owners

Founder & CEO of Artisan Financial Strategies LLC. She is fascinated by the interplay between gender, money and power.

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Business owners often figure once they’re ready to retire, they’ll sell the business. That’s what happens in many cases, but many small businesses simply aren’t suited to a sale. It’s imperative for these owners to recognize this and take intentional action to create a no-sell exit strategy that supports their long-term financial and lifestyle goals.

Even the smallest companies can find buyers if the business can transfer value to a different owner—but that transferability of value is key. Enterprises for which success hinges on the unique drive, talents or social relationships of a single individual rarely meet that standard.

If there’s a key person who can partner with the owner and, over time, begin to fill the same roles, then the business may continue to thrive in new hands following a slow, carefully managed transition period. Without that key person, however, it’s simply not going to work. If there’s no key person and the business isn’t suited for an eventual sale, the business dies with you.

What now? Well, you’ve done the most important thing already by recognizing the reality of your no-sell situation. Now let’s scope out a realistic exit strategy.

Step 1: Decide What ‘Retirement’ Looks Like For You

Do you cherish a vision of full-time relaxation, complete with front porch rocking chairs and wide-brimmed hats ruffling on an endless beach day? Somewhere along the line, most entrepreneurs begin to realize that they don’t really want to permanently clock out of the business—they just want to reshape what their days look like.

Fewer hours, more consulting or coaching, less stress and less urgency overall. That’s the version of retirement that I see high achievers going for, which is why I like to think of this time of life as the “work optional” period. It allows business owners to exit “feet first” while still enjoying the pleasures that matter to them in their golden years.

Reality check: The traditional retirement will require a lot more assets than a slower transition that includes some remunerative activities. For some business owners, going work optional is the only choice that makes financial sense.

Step 2: Understand The Costs Of Your Preferred Lifestyle

Your current lifestyle probably costs more than you think. Business owners typically run a host of personal expenses through the company and don’t even realize the budgetary impact—everything from cell phones to health insurance.

When they sell or exit the business, the cost of maintaining their normal lifestyle suddenly rises in ways they didn’t anticipate. Of course, it’s not really rising. But with the business no longer in the picture, all those personal expenses move into the personal spending budget—where they can hit hard.

Understanding your personal cash flow is key to financial planning, especially as you approach “work optional” status. Every business owner needs a detailed personal cash flow report that includes all the expenses that may be reduced or masked by their association with the business.

Step 3: Get The Right Financial Pieces In Place

An accurate cash flow report also plays a critical role in helping you set appropriate levels for disability, long-term care and life insurance. Consider maximizing coverage on these policies based on your K1 and W-2 statements, while taking into account costs that your business has been subsidizing.

My final reality check for you is a reminder that there’s more to life—and personal finance—than business. Entrepreneurs are so used to focusing on the business that they often neglect the crucial need to create economic value outside of the business.

While your business may be your biggest asset, if you aren’t creating diversified assets outside the business to build your personal financial statement, you may be painfully unprepared for retirement. A comfortable post-work lifestyle requires you to build personal assets through life insurance, retirement accounts, non-business-owned real estate or other financial vehicles.

The Takeaway

Take care of your business, by all means, but don’t forget to take care of yourself and your family too. For small-business owners who won’t be selling their business someday, that means solid insurance coverage and ample personal assets that aren’t tied to the business.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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