As a self-employed person, it’s important to have an exit plan in place in case something happens and you need to leave your business. Whether you want to sell your business or hand it off to someone else, you can take steps to make the process easier. Let’s look at some tips on exit planning for self-employed people.
What Is Exit Planning and Why Do You Need It?
Exit planning involves preparing for the eventual sale or transfer of your business. This planning is important for any business owner, but it’s especially crucial if you’re self-employed.
Proper exit planning offers you the peace of mind that comes from knowing that your business is taken care of, no matter what happens. It also ensures that your family is taken care of financially if something happens to you.
How to Create an Exit Plan
There are multiple things you need to consider when creating an exit plan. First, you need to decide who will take over the business. This person will need to be someone you trust implicitly, with the know-how to run the business.
You also need to think about what will happen to your employees. Do you have key employees who are essential to running the business? If so, you’ll need to ensure they’re taken care of in your exit plan.
Finally, you need to think about the financial side of things. How will your family be taken care of financially if something happens to you? What will happen to the business itself? These are all fundamental questions to answer in your exit plan.
The Different Types of Exits Available to Self-Employed Individuals
There are a few different ways you can exit your business.
The most strait forward involves selling the company outright, transferring ownership to a family member or key employee, or taking on a partner.
Selling the business outright is often the best option if you want to retire or move on to something else. You can sell the company to a third party or transfer ownership to a family member or key employee. Selling the majority of your business to a third party often leads to the highest sales price and often the most up front cash.
Transferring ownership to a family member or pivotal employee is a good option if you have someone in mind who you trust to take over the business. This option allows you to keep the firm in the family and ensure it’s taken care of. One of the downsides to an internal transition is that you as the owner often retain some of the risk and finance part of the sale to the buyer.
Deciding how to exit your business is a personal task. There’s no correct or incorrect path, but it’s prudent to consider your options and choose the best option for yourself and your family.
How to Start the Process of Exit Planning
If you’re ready to start exit planning, the first step is to sit down with your family and discuss your wishes. This discourse is an important conversation, as it will help everyone be on the same page.
Once you’ve had that conversation, the next step is to meet with professional advisors, including your:
- Certified Exit Planner
- Accountant
- Lawyer
- Financial planner
- Business broker
- Insurance agent
These experts can help you create a plan that meets your unique needs. Ensure that you also speak to someone you trust with experience in exit planning.
Executing Your Plan to Ensure a Smooth Transition
After you’ve created your exit plan, it’s important to implement it. This step means working with your professional advisors to execute the plan. Periodically reviewing and updating your plan is prudent to ensure it still meets your needs.
Ensure you have all of your papers sorted. This work includes having the right insurance in place and ensuring that all of your legal and financial paperwork is up to date. Your employees should also be aware of the plan and their roles.
Once the new owner or partner is in place, take the time to train them on the business. This training will ensure a smooth transition and lessen the risk of any disruptions.
The Importance of Having a Support System During and After the Exit Process
Exiting your business can be a stressful and emotional process. Having a support system in place during and after the process is vital. This support system could include:
- Family
- Friends
- Professional advisors
- Other business owners with the same experience
Having a support system will enable you to stay focused and on track. These people can also offer advice and help you through any tough times.
Prepare for the Exit in Advance
The exit planning process is important but doesn’t have to be daunting. By taking the time to plan, you can ensure a smooth transition for yourself and your family. Remember that you don’t have to do it alone. There are plenty of professionals who can help you through the process.