You are a typical private business owner. You’re an entrepreneur in your late 40s or early 50s and you’ve operated your business for 20 plus years. The business has grown to a substantial operation and you’re just beginning to think about eventually retiring and exiting your business. Failing to act, however, can be a big mistake. In fact, it’s one of the three leading reasons that family-owned businesses fail.

You need to prepare for your exit no matter what your age or how close you are to exiting the business. Here are a few ideas to help you get started:  
 
1. Take small steps!
 
First, try breaking down the planning effort into small steps and one of these a month.  For example, write down your personal goals for your exit. You might include goals such as:  When do you want to retire?  What would you like to do after you leave your business? How do you want to leave the business (e.g., cold turkey or more gradually)? How will you get your investment out of thebusiness? Do you want to sell to a third party or to a family member?
 
2. Have your business valued.      
 
You need to know where you are before you can begin planning how to move toward your desired objective. Do not trust your gut or use an industry rule of thumb.  This information is just too important for guess work.  There are many reputable firms that specialize in preparing an objective determination of the current value of your company and, since many subsequent steps hinge on this valuation, it’s vital to have it assessed properly.   
 
3. Develop a financial plan.
 
Talk with a financial advisor about:
 
·        Retirement – How much will the sale of the business (after taxes) provide for retirement?
 
·        Estate Tax – How much estate tax is attributable to the business and what are the best methods to reduce or avoid the tax?                
 
·        Life Insurance – Is your life insurance adequate given the value of the business?
 
·        Shareholder Agreements – What value should be included in a shareholder agreement for transfers and buyouts?
  
 
4. Have a current estate plan in place.
 
Your business is probably your most significant asset and makes up the greatest part of your estate. As part of your comprehensive exit plan, you also need an estate plan to minimize (or even eliminate) taxes on this asset when you exit. From the results of the business valuation, you and your advisor will be able to determine your estate tax exposure. You can then determine the best blend of items to include in your plan focused on the reduction of ordinary income taxes, capital gains taxes and estate taxes. If you already have an estate plan, you will probably need to update it to take into account changes in the law. Because the laws are complicated and are constantly changing, you should consult with a tax attorney or financial advisor who specializes in this area. 
 
                              
Richard Jackim is the co-author of The $10 Trillion Opportunity and may be reached at 847-303-6554.