You’ve worked hard to build your business and may look forward to the day when you can retire. Many business owners use the sale of their businesses to help fund their retirement years. Have you considered how you will successfully exit the business you’ve worked hard to build?
Here are three questions to think about.
1. Do I have an exit strategy?
It’s not just selling your business for retirement. A good exit strategy should consider several scenarios including death, disability, or your intent to sell the business. Having the right strategy in place can mean the difference between a successful transition and a forced sale.
It may seem obvious, but there are several ways to exit a business, such as having fellow owners purchase your share, keeping it in the family, or securing a new buyer.
If you plan to sell your business during your lifetime, you likely want to transfer it for the greatest value. Getting a valuation of your business can help you achieve this.
2. Is it in writing?
If your exit strategy isn’t in writing, you may have a potential problem. Handshakes or verbal agreements are generally hard to enforce in a court of law.
It’s important your exit strategy agreement and related documents are signed by all parties involved. It’s also a wise move even if you never plan to retire. If you die, there’s no guesswork for your family about your exact intentions for your business.
3. How is it funded?
After your exit strategy is in writing, you need to secure how you will be compensated for your share of the business.
For example, if your exit strategy is to sell your business at retirement, or in the event of your death or disability, consider how the buyout will be funded and whether your agreement contains a mechanism for valuing your business interest on an ongoing basis.
One ideal funding source of a buy-sell agreement is life insurance. Triggered at the death of an owner, it is often the most affordable funding mechanism when compared to alternatives such as a sinking fund, a bank loan, or an installment sale.
Start the conversation
A great place to start is by working with a financial professional to help you get definitive answers to these three questions about exiting your business.
If your family is a part of your exit strategy, be sure to include them to ensure your plan will be successfully received and implemented. And always consult with your tax and legal advisors prior to implementing any exit strategy.
This material provides general information that is designed to be educational in nature and is not intended as specific tax or legal advice to any particular individual nor the law of any particular state. Please seek the advice of a qualified tax or legal professional for your specific situation.
Products are issued by the AuguStar Life Insurance Company and AuguStar Life Assurance Corporation. Product, product features and rider availability vary by state. Issuer not licensed to conduct business in NY.