How to Build a Small Business Exit Plan and Succession Strategy

If you’re considering retirement or reducing involvement in your company, do you have an exit strategy? Succession planning for small companies is critical to ensure continuity and stability when a current owner or other leaders decide to step away.

Preparing for leadership transitions in advance protects the legacy of your business, minimizes disruptions and safeguards jobs for employees. Additionally, a well-developed succession plan can maximize your business’s value and give you peace of mind that future leaders will carry your goals and vision forward.

What is a succession plan?

A succession plan is a strategic roadmap that outlines how leadership and ownership of a business will transfer to key leaders. When developing a succession plan, consider your goals. As part of your plan, create an exit strategy that outlines how you’ll meet your financial needs with the transition. This is an important consideration whether you decide to relinquish some duties to focus on others, sell, pass ownership to a successor or liquidate assets. Sound business exit planning also helps protect the interests of all stakeholders involved.

Business exit strategy options include transferring ownership, selling or closing.

Business exit planning can safeguard an owner’s fiscal interests. Transferring ownership to a family member, selling to an employee or to an outside buyer enables owners to preserve business continuity, protect their financial interests and transition on their own terms. However, you do have other options. Choose the path that best aligns with your personal goals, as well as the needs of the business.

• Hire a professional manager.
  Instead of selling, you may choose to hire a professional manager to assume day-to-day business operations. A professional manager can oversee staff and manage finances, while still driving business growth according to your vision and strategic goals. As the owner, you are then able to focus on higher-level planning or gradually transition out of the business when ready. Forty-seven percent of businesses under $500 million in revenue plan to engage a professional manager and, with this team member’s selection, intend for non-family members to succeed them as CEO.3
  
  
• Pass the business to a family member.
  Transferring ownership or leadership of your business to a child or other family member as a legacy might be practical if you feel they are prepared. Forty-seven percent of family-owned companies with less than $500 million in revenue expect a family member to succeed as CEO.4 However, if you are unable to identify a qualified family member, you should consider another option.
  
  
• Sell to an employee.
  An employee might be interested in buying your business, which could be mutually beneficial. This individual may already understand the company’s operations, culture and clients. This familiarity can lead to a smoother transition and less disruption for staff and customers. As an owner, it may be reassuring to know that the employee will continue your legacy and maintain the business’s core values.
  
  
• Sell to an outside buyer.
  Selling to someone outside the family or business can offer several advantages for small business owners. Often, the seller can negotiate terms that best suit their financial goals, including price and ongoing involvement. Additionally, a strategic buyer may bring new resources, expertise and growth opportunities to the business.
  
  
• Liquidate the company.
  Liquidating a small business involves closing operations, selling off assets and settling any outstanding debts. Owners must gather a list of all business assets and estimate their value to understand what they can expect to receive after liquidation. This process typically includes selling inventory, equipment, physical and intellectual property to pay creditors and provides the owner with additional funds. Liquidation marks the end of the business, rather than a transfer to another owner, a popular choice when the company can’t be easily transferred or sold.

Including a small business exit strategy in your succession plan helps protect your company’s value, while enabling you to financially secure your future.

Confidently plan your business exit and ensure a smooth transition.

A succession plan facilitates a more efficient leadership transition with fewer disruptions. These four steps will help you prepare.

1. Clarify your personal goals and timeline.

   Decide when you want to step back and why (e.g., retirement, reducing hours or starting a new venture) and how involved you want to remain afterward.

2. Define your financial target.

   Estimate how much money you will need to pay debts, fund retirement, cover taxes, etc. if you decide to sell.

3. Assess business value and transferability.

   Evaluate financial statements and balances, documented processes, contracts and customers to determine whether the business can run without you.

4. Set milestones within the plan.

   Setting milestones provides clear benchmarks to track progress and ensure accountability. These markers also help you stay organized and allow you to proactively address any challenges that arise during the transition.

Whether you choose to sell or maintain involvement in the company, as a board member or advisor for example, start working with your successor early. Discuss plans for the company’s future, current obstacles and opportunities for growth with successors.

If you’re going to sell, discuss business projections, your preferences for structuring the eventual purchase and the transition time. In addition, update business and accounting records.

Ready to start the next chapter?

Business exit planning can benefit from the expertise of financial advisors. For example, these specialists can help assess the value of your business, guide the structure of a sale or transfer, and minimize financial risks.

As members of the transition team, bankers can also assist with capital needs such as:

• Paying off outstanding debts and liabilities.
• Funding retirement plans for the outgoing owner.
• Managing legal and administrative costs, as well as handling tax obligations related to sales or transfers.
• Maintaining business operations during the transition period.
• Providing financial security for both the outgoing owner and the successor.

Our experienced bankers can help with succession planning for business owners and help fund your exit strategy. Call 1-888-SYNOVUS (1-888-796-6887) or stop by one of our local branches for more details.