Planning for Exiting Your Business in a Down Economy: Not as Crazy as You Think
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Many business owners assume that a downturn in the economy means that it is a bad time to exit their business. The truth, as always, is a little more nuanced. For instance, while it is true that the value of most businesses are down, if you are looking to gift or sell to family members, this is not necessarily a bad thing. A business owner may be able to transfer a larger chunk of the business under the lifetime gift tax exclusion. So a seller may actually come out ahead in the end. The key word is may, as often less is just less.
Even if one is looking to sell to an outside buyer, a smaller value on a company may in fact increase the likelihood of a deal getting done. Or, to put it another way, 70% of something is better than 100% of nothing.
A second and somewhat ironic point to make is, if a business owner waits until times are good to start planning, the economy may turn sour again before they are able to consummate the deal. So the solution is to plan whether the business is up or down, and whether the economy is up or down, and then be ready to trigger the plan when the economy starts turning around, and hopefully the value of the business is also on the upswing.
A third area to consider when choosing to not plan, is what happens if something unfortunate happens to the business owner while they are waiting for the economy to turn around? We've all heard the proverbial story of getting hit by a Mack truck on the way to the office. Ultimately, misfortune does not usually wait for when it is most convenient for the owner, their family, and the business. To use another common phrase, the key is to hope for the best, but plan for the worst. A good succession plan, while probably not sufficient for emergency planning, can help the owner's family (and the business) make the best out of a bad situation.
The bottom line is, there are no excuses for not planning.
If you are interested in learning more about how to plan for exiting a business, the Succession Planning Program at kent State University (an affiliate of the Ohio Employee Ownership Center) is offering a free webinar series (sponsored by the Ohio Department of Development) on business exit planning for business owners. More info on the program and registration details can be found at:
http://www.oeockent.org/index.php/successionplanning/resources/webinars
In addition to the upcoming webinars, the previous 20 webinars are archived for on-demand viewing at:
The Succession Planning Program at kent State University also offers many other services for business owners, many of which are free or at little cost, to assist during this process. Details are available at our website.
I'd like to thank Roy Messing and Jay Simecek, both of the The Succession Planning Program at Kent State University, for contributing to this article.
