Exit Planning for a Family-Owned Business

family business

Written by Dr. Nolan Duck

Dr. Nolan Duck is a Board Certified Broker with the Texas Association of Business Brokers (TABB) and a licensed Commercial Real Estate Broker with the Texas Real Estate Commission. Nolan is also a Certified Value Builder, Certified Exit Planning Advisor and member of the Alliance of Merger & Acquisition Advisors. As a business coach, author and public speaker, Nolan enjoys sharing advice and consulting with business owners seeking to grow, expand or exit.

The Baby Boomer generation is rapidly hitting the retirement mark, and this includes 7.7 million business owners representing over $10 trillion in wealth. Yet the majority of business owners don’t have an exit plan or any plan on how to retire or leave their businesses in the future.

Are You Thinking About Retirement?

Waiting to sell might be your default — especially if you are attached to your business or want to wait for top dollar. But having a plan, even years in advance, is a better approach.

Research shows that 83 percent of business owners have no written succession plan. This leaves them open to exiting in one of these five undesirable ways:

  1. Death
  2. Disability
  3. Divorce
  4. Distress
  5. Disagreement

When you exit without a plan, you could end up getting too little for your business or paying more in taxes for the transaction. Additionally, failed succession planning will directly affect millions of employees and indirectly harm even more vendors, suppliers, partners, contractors and others who rely on your business to succeed.

If you’re putting off succession decisions because you enjoy what you do and don’t want to quit, we have news for you: Proper exit planning means you can work longer and sell your company for top dollar when the time is right.

It helps to partner with an M&A Advisor skilled in exit planning and succession strategies. Creating a team of advisors that includes your financial advisor, your CPA, your trusted advisors and a firm like DBG Advisors will help you prepare, accelerate value, and ultimately close a business sales transaction.

Why Exit Planning is Important

A business exit plan asks and answers a variety of questions that must be considered when exiting a company, such as:

  1. What happens if the business owners die?
  2. What happens if the business owners divorce?
  3. What happens if the business owners retire?
  4. What happens if the business owners have debt?
  5. What happens if the business owners leave the business to their family?

Transition plans will also keep in mind tax/estate planning and personal goals (philanthropy, hobbies, legacy).

In the past year, business owners have been exiting in record numbers due to the COVID-19 pandemic and the resulting lifestyle reflection it spurred.

Research is showing that these record exit numbers came after quarantine/lockdown. Some Boomers saw their business erode, some saw gains, others decided to exit to enjoy life and spend more time with their children and grandchildren. Others went into early retirement due to medical reasons.

At the end of 2020, research found a 25 percent drop in Boomers who claimed to be business owners.

And this year, for the first time, more Boomers are retired than working (30.3 million to 29.6 million).

On the other hand, the pandemic knocked down several business owners who were close to retiring, but were forced to rebuild, rehire and reassess exit strategies. If you find yourself in this situation, don’t wait to regain traction — increase valuation proactively with DBG Advisors.

 

Successful senior
Business is Open
Common Exit Strategy Plans
Pros
Cons
Sell to family
  • You can choose the person you want to continue your business
  • You may be able to stay on in some sort of transitional or advisory role
  • You may not find a family member who wants to take on the business
  • This process may bring a lot of stress to your family
  • Employees, business partners, or investors may not support the individual in your family you choose
Sell your portion of the business to your partner(s)
  • Your business legacy will remain intact and your business should continue to function as usual
  • You can exit your business fully and earn a profit on the sale of your share
  • You’re dealing with a buyer you already know and work with
  • You may not find a buyer or investor who is willing to purchase your share
  • It may be more difficult to stay involved
  • The process could end up being contentious between you and your partner
Sell to your management team via a management buyout or your employees via an Employee Stock Ownership Plan (ESOP)
  • You can hand off your business to someone who has experience in the organization
  • If you want to remain involved in some capacity, the employees who are buying your business should be more likely to make something work
  • Your business’s legacy will remain somewhat intact
  • You may not be able to find an employee or manager who wants to buy the business from you
  • You may find that these management changes have a negative effect on existing clients
Sell to (or merge with) a strategic acquirer
  • You’ll be able to have a clean break from your business (if that’s what you want)
  • You can negotiate the terms, price and other details of your merger or acquisition
  • This can be time-consuming and costly
  • Your business may no longer exist as it once was
Liquidate
  • You’ll never have to worry about the business again
  • Compared to some other business exit strategies, this can be one of the simplest

You likely won’t get the biggest return on investment

Severing relationships with employees, partners, clients, customers, etc.

Hire a Certified Exit Planning Advisor

At DBG Advisors, Nolan Duck is a Certified Exit Planning Advisor (CEPA). Many CEPAs are financial advisors, but Nolan brings valuable expertise as an M&A Advisor and his experience with business valuation.

Business owners and their families throughout Texas trust Nolan with his decades of experience and ethical values. Our offices are in North Dallas and Abilene, but we enjoy traveling to meet with clients in West Texas and the Panhandle. 

We also provide a complimentary consultation for new clients, either in person or video conference. 

M&A activity in Texas is growing in 2021, and we see signs that buyer demand will be around for some time to come.

If you’re ready to discuss retiring from your Texas-based business, contact us today to get started on an exit plan.

What Sets DBG Advisors Apart

Connections

Connections within the North Texas business community and in larger Texas markets

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Marketability

Ability to market Texas businesses to other buyers within larger cities of Texas and even assist in out-of-state mergers and acquisitions

Our Specialty

Specializing in family-owned businesses and small businesses

Understanding

Understanding and responding to the specific reasons you have for selling your Texas business, including as part of an exit plan, looking to retire comfortably, looking to move, selling a business in order to expand and grow, etc.

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