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Charting Your Business Timeline - Moving On: Exit Strategies

December 6, 2005
URL: http://www.entrepreneur.com/article/81282

The world's oldest business is a Japanese temple construction company that has been run by the same family since 578 A.D. Your business may or may not last that long, but one thing is sure: You won't be around to see it. Whether you plan to sell, close or pass the business on to your children, it's never too early to think about an exit strategy.

Many owners of closely held businesses hope to pass their businesses on to the next generation of family leaders . If that's what you're planning, you should have begun grooming a successor during the years your business was maturing as described in the previous section. If not, start today! The process can take years.

Having a well-prepared successor isn't the whole story, however. You must also plan for the way in which you'll actually hand over the reins. The best way is probably to announce in advance a date on which you'll retire. When that day comes, leave the business and never return. You may make yourself available for consultation by the new leadership, but returning to the workplace and visibly participating in making decisions will only confuse everyone about who's really in charge.

Selling your business is another popular expectation of many entrepreneurs. Many potential buyers exist for well-run, profitable companies. They include other companies, both larger and smaller, investors in the public stock market, other entrepreneurs and your own employees. No matter who the buyer is, a successful sale usually begins years before the actual transaction.

Business buyers are paying for the right to the future cash flows the business will generate. These cash flows must be significant enough to justify the purchase price, which is often based on a multiple of those projected cash flows. And you must be able to document the reasons you expect future cash flows will reach a certain level. That means careful record keeping, well-written operations manuals and thorough marketing and financial plans.

Simply closing the business is also a viable choice. If you don't have a viable successor and the business is unsuitable for sale, this may be your only option. The process is simple: Lay off your employees, sell the company assets, refer your customers to other suppliers, pay whatever bills remain, shut the doors and walk away. This is the most straightforward exit strategy , requiring the least forward planning and preparation and, if done properly, can be a satisfying conclusion to a rewarding entrepreneurial career.

A Guide to Business Timelines