I’ll never forget years ago meeting a very nice, white-haired pharmacist in Sarasota that owned a rather profitable and lucrative practice. I asked him to tell me about his exit plan and his response was, “ Exit? I’m not ready to exit. Come back and see me when I’m ready to leave my practice and I’ll be happy to speak with you”. I was lost for words for about 5 seconds. That’s like say, “Retire? I’m not ready to retire! Come back and see me about your retirement plans when I’m ready to retire”. This doctor won’t need an exit plan when he’s ready to leave, he’ll just have to accept whatever he gets and take the hit via valuation and/or tax. It’ll be too late. He’ll have no control and undoubtably be surprised and disappointed with the results.
Another disappointing and common engagement that I see is when I’m selling an owners business and he asks me, “What do you think my tax bill will be when we sell this business of mine?” I don’t know, but it’s a little late to asking this rather important question! I’ll ask them what their accountant has advised and they respond with a blank look! AAARRRGG! So, what is an owner to do?
Talk to your accountant or tax preparer now!! (is two exclamation points enough?) Don’t put off this important topic.
Review your entity structure. Is the C-corp structure the right type of entity formation for tax efficiency? Doubt it. Should you change to an S-Corp? What will the tax effects be? How long does it take to convert from a C corp to another type of entity structure? Should there be a separate entity formed for your type of business?
What is your business currently worth? In my prior blog, there are some links to this topic, but if you’re over $1MM in value, get a simple market valuation done or talk to someone who has some knowledge on this topic.
Is the value of your business worth enough to sustain your retirement? Meet with your financial planner or find someone who can help you answer this basic question. Often, the largest item on a business owners balance sheet is his business. Once you liquidate your business, will it be enough.
What is your business worth today and what should it be worth? Are there some things that you can change to increase that valuation figure? At HPX Advisors, we can introduce you to eight different areas that if you change, can almost double your business valuation! This takes time, so, don’t put it off. If you want your score on business readiness, click this link to take a 33 item questionnaire. Instead of getting 3x pretax profit, wouldn’t you rather have 6x pretax profit when you sell?
The problem with most owners is that they get caught up in the day-to-day operations and don’t give their exit a second thought UNTIL there’s an unfortunate event… stroke, death in family, car accident, divorce, lawsuit, etc. Again, it’s often more about damage control at that point rather than executing a thought out, written plan.
Another problem with business owners is that they often don’t know how to plan for their exit, so they simply put it off. With a little help, experienced consultants can help you make decisions and it doesn’t take a lot of time on your part.
Whether you call us at HPX Advisors or someone else, my encouragement to you is to do it now before it’s too late. One way or another, you will leave your business by choice or not. Don’t put off this important planning process; your family and employees will thank you and your legacy will be secured.