Business and Corporate Section Monthly Article


The Importance of Formulating an Exit Strategy

Have you been looking forward to the day you can retire, possibly turn your business over to a son or daughter, or sell it? Even if you are not planning to stop working, you need to plan for the day you cannot run your business due to unforeseen illness or death.

Most business owners neglect to take the time to plan for how they will leave their business. They get caught up in running the company, or they do not know where to start. But if you continue to own a business until you die, without proper planning, it will be included in your estate and could be subject to substantial estate taxes. Potentially, your family could be forced to sell the business or its assets at “fire sale” prices. Then you will have worked hard all these years so that the vultures and Uncle Sam, not your family, will reap the benefits.

Planning for how you will exit from your business should be an integral part of your business plan. Proper planning now can provide you with reduced income and estate taxes, retirement income, and even let you benefit a charity if you so choose, regardless of whether you transfer your business to family members at discounted values, to employees, or to an outside buyer.

In today’s market, the economy and trends are affecting the value and timing of business transfers. In January 2009, the first wave of baby boomers applied for Social Security. As more move into retirement, what will happen to their businesses? Due to the sheer numbers of this aging population, there may be two to three sellers for every qualified buyer. This increased competition will affect the values of their businesses.

Most owners simply cannot wait until they reach age 68 and then decide to sell. In most cases, it takes time to prepare to go to market. Even in this climate, there are things you can do as a business owner to protect or increase the value of your business in anticipation of a transfer.

Planning now to exit your company will result in you and your family receiving the best possible results, both now,  after your retirement, or upon disability or death. Your options are endless.  You can transfer your business to your family, your employees or an outside buyer; you can receive retirement income; you can make a difference for a charity or your community; and you can do all of this with reduced income, gift and estate taxes. The key is starting now.

-- Matthew Odgers, Law Office of Matthew W Odgers

**This article is intended for informational purposes only and does not constitute legal advice. Any views expressed are those of the author only and not of the SDCBA or its Business & Corporate Law Section.**