Harvest Time

Every business has a beginning, and every business owner needs to know how they want to end their time in the business. Like the cycle of life, entrepreneurs invest time in giving birth to businesses, yet they spend little to no time planning the end. Few entrepreneurs think far enough into the future to include plans on how they want to harvest their business, which takes as much planning and attention as the beginning.

“Entrepreneurs are like farmers, they plant their seeds and work hard to ensure a healthy and plentiful crop. What they need to remember is to create a plan for harvesting or exiting the business. Farmers need to know how and where they are going to sell their crop. Likewise, entrepreneurs need to have a vision for when and how they would like to exit their businesses.”

Regardless of how long the entrepreneur wants to stay in the business, there will be a point when he or she will leave. Whether through selling or retiring the business, each business needs to be as prepared for that day as the first day. Three basic approaches to the exit include passing the business down to heirs, selling the business or closing the business.

Many entrepreneurs start businesses in the hopes that they will be able to pass the business down to their children when they are ready to retire. There have been many famous companies that have passed the family business down through several generations. While passing one’s business down to the next generation sounds easy, planning needs to occur in order to ensure a smooth and successful transition. Business owners need to prepare the next generation with the skills and knowledge needed for a good succession.

In preparing a succession plan for a family owned business, there are organizations devoted to assisting the business owner and his family for a successful transition. The Family Enterprise Center located at the University of Arkansas – Fort Smith is dedicated to assisting family owned businesses through multiple generational issues. Additionally, there is a national nonprofit, the Family Firm Institute, who provides information and research concerning the family company.

If passing the company to a chosen heir is not desired, cashing out of the business through  selling the business is the most popular exit plan. Unlike preparing a successor for the business, an entrepreneur can sell the business in different ways.

The first option in selling a business is to take the business through an IPO (or initial public offering). Taking the business public where shares are bought and sold on the stock market is not an easy option. The business is subject to the rules and regulations of the Securities and Exchange Commission. This strategy takes time, strict business practices and the entrepreneur needs to be aware of the rules surrounding the sale of the owners share in the company. Typically, businesses that need large sums of funding to conduct research or are going through a rapid expansion phase are candidates for an IPO.

While very few business owners opt to sell their business interest through stocks, many business owners sell their businesses to another buyer as his exit plan. There are different types of sales, so business owners should consult with a CPA and a lawyer to ensure the proper due diligence and valuations are conducted.

Lastly, business owners can simply opt to close their business. Whether retirement has arrived or the business is not in a position to be sold or passed down, the entrepreneur has the option to end the life of the business.

While no one desires to draft their own wills, business owners seldom enjoy preparing for their exit from a business they have put so much time an effort into. Knowing how and when to exit the company allows the entrepreneur the goals and milestones needed to ensure a successful transition. Additionally, the entrepreneur strengthens the business foundation for future success.