Those on the verge of retirement have cause for celebration—however, without a clear exit strategy, unforeseen problems can arise. A well-planned exit strategy is the difference between smooth sailing and stormy weather.
What is it that separates successful business owners from the rest? The Family Office (http://www.abernathygroupfamilyoffice.com) reveals the components to an effective exit strategy—and how to get them in place now.
A variety of questions come up when there are changes in business leadership: Is there a non-compete? What happens regarding buy-outs? Is there a clear, executable succession plan in place?
For any successful transition, early planning is essential before considering or finalizing retirement.
“There are so many variables between working and retirement that go well beyond a change in receiving a regular paycheck,” cautions Brian Luster, CEO and co-founder of The Abernathy Group II Physician Family Office. “The successful exit strategy covers all the bases—it spells out any ownership issues in the event of a buyout, clarifies insurance and liability issues between the retiree and those who remain, and makes clear how service, if dependent upon the presence of the retiree, will continue on successfully.
How can so many potential loose ends evolve into a workable succession plan for the retiree?
“An exit strategy can and should be planned as early as possible,” says Steven Abernathy, Chairman and co-founder of the Abernathy Group II Physician Family Office. “While the transition might not happen right away, lead time can be the difference between retiring with ease and wrecking one's professional legacy.”
What is the right amount of time to “give notice”? Laws vary state by state and protocols differ by industry. For example, the AMA advises psychiatrists to provide six months’ notice to patients prior to retirement/moving. Timely notification isn’t just for courtesy’s sake; it offers protection. A lack of proper coverage, such as discontinuing malpractice insurance prematurely, could result in a lawsuit.
Selling any business usually involves legal, tax, accounting, operational, and perhaps even regulatory issues, and, there are several things to consider:
- What is the correct valuation for the business? Weighing tangible assets like real estate is easy, but, what about intangible assets such as goodwill?
- Taking regulatory changes into account, what do revenue projections look like ten years down the road?
- Will the business’ structure, such as a C-Corp, S-Corp, or LLC, affect tax ramifications?
- Have the proper professionals been employed to handle the transaction?
It may be rare to find one who enjoys the minutiae of exit planning; however, asking the right questions can decrease future headaches significantly.
Here are the top three considerations for business owners today according to Family Office:
Take the needed steps to avoid frivolous lawsuits. Owners are advised to decrease any possibility of legal action in any form. Clear verbiage in all contracts, as well as in employee handbooks, is one step of many.
Clarify how and when partnership agreements will be dissolved. This could be the best—or worst—thing to ever happen to both the party departing as well as those who are left behind. If someone’s departure translates into lost intellectual capital, this could present a problem to the core business.
When someone is on the move, do key business partners and clients follow suit? A non-compete agreement (especially if it has been exchanged for something of value or consideration) can serve as the blueprint delineating what type of post-employment behavior is or is not permitted.