The COVID-19 pandemic has taken a toll on business owners, causing many burned out entrepreneurs to ponder an early retirement...
The COVID-19 pandemic has taken a toll on business owners, causing many burned out entrepreneurs to ponder an early retirement. If you are seriously thinking about retiring or selling your business in the near term, it is imperative to have an exit strategy in place.
Survey Reveals Business Owners Are Pondering Early Retirement
Many large business owners have escalated their retirement plans in the wake of the pandemic, according to the latest Business Owners’ Outlook survey by Wilmington Trust and M&T Bank. It found that many business owners are experiencing burnout and exhaustion, resulting in a high percentage moving to retire earlier or looking to sell their companies.
The survey data indicates that the number of owners who say they plan to retire sooner than expected has doubled since August 2020. Among owners of larger businesses, the survey revealed a 110% increase since last August; meanwhile, the number of owners of smaller businesses who plan to retire sooner has jumped 100%. In that same time period, the percentage of owners of larger businesses who say the pandemic has caused them to sell their business sooner than expected has increased 31%.
Interestingly, the survey found that business owners are also less optimistic that their wealth will be well-managed in their absence. In March 2020, 50% of all entrepreneurs were very confident that their personal and business assets would be well managed in their absence. That figure dropped to 34% in the latest survey.
Importance of Exit Planning for Business Owners
While it may be possible to accelerate the timeframe for selling your business, it is still imperative to have a plan in place. Without careful planning, you could risk losing everything you have worked so hard to build.
When developing an exit strategy, there are numerous issues to consider. Below are a few that should be at the top of your list:
Evaluating your finances: One of the most important steps is to determine the value of your business. Equally important is to determine how much money you will need to gain from the sale of the business to be financially secure and how you want that money to be paid, i.e. lump sum, installments, etc.
Considering your options: There are several different types of exit strategies. The most common is to sell the business, whether it be to a family member, management/staff, or a third party. Other options include merging with another business, conducting an IPO, and closing/liquidating the business. It is important to carefully evaluate what strategy is your best option, as the decision may be influenced by a wide range of factors, including the nature of your business, the economic climate, and your timeframe for exiting the business.
Consulting with your advisors: Many business owners fail to appreciate all of the issues that must be addressed in an exit/succession plan, including the legal and tax implications. It is crucial to involve all of your key business advisors in the process, including your accountant, attorney, investment advisers, tax professionals, and insurance agents.
Compensating your investors: As you develop your strategy, you will need to discuss your plans with your investors and stakeholders. Among other issues, the plan should address how and when investors will be repaid.
Training your successor: Training a successor to take over your duties should start as soon as possible. The most effective succession plans appoint, train, and install successor(s) before they are needed. Allowing the new leader to take over responsibilities over time and while current executives are still available to provide guidance can help ensure a smooth transition. Of course, it can be difficult for current leaders to let go of the reigns and allow the successor to learn from his or her mistakes.
Informing your employees/customers: If you plan to exit the business sooner rather than later, it can be beneficial to keep both employees and clients in the loop. Informing key employees, clients, and business partners about your plans helps preserve good will and can make for a smoother transition to new management/ownership.
If you are not yet ready to walk away from your business, you should still have an exit strategy in place and a fairly good idea of how much your company is worth. Having a business valuation and exit plan in place helps ensure that you will be prepared to act when the time is right.
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Fred Zemel, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.
You Just Received a Federal Grand Jury Subpoena in New Jersey: Now What?
Receiving a federal grand jury subpoena is not something most businesses or individuals anticipate. While it can be concerning, a federal grand jury subpoena does not necessarily mean that you are being accused of wrongdoing. It does, however, mean that a federal criminal investigation is underway and that federal prosecutors believe you may possess information […]
Why Every Business Should Conduct an Annual Insurance Coverage Review
Most New Jersey business owners purchase insurance policies, file them away, and assume they are protected if a claim arises. Without a regular insurance coverage review, many companies discover gaps only after a lawsuit, cyberattack, property loss, or other significant event occurs. An annual insurance coverage review can help businesses identify potential risks, ensure their […]
Demand Letters & Cease and Desist Letters: When to Send One (and When Not To)
Businesses and individuals often encounter situations where another party breaches a contract, fails to pay a debt, or continues harmful conduct. In many such disputes, a precisely drafted demand letter or cease-and-desist letter serves as a powerful legal tool. It can frequently resolve the dispute and avoid litigation. While demand or cease-and-desist letters can resolve […]
Key provisions in your contracts, including those relating to indemnification, insurance, and defense, are essential to contract risk management. While sometimes considered “boilerplate,” these provisions play a pivotal role when determining which party is responsible for certain costs and liabilities. They must always be negotiated and drafted carefully. Indemnification Clauses Businesses should never overlook the […]
Portability of estate and gift tax enables a surviving spouse to inherit any unused portion of their deceased spouse’s federal estate and gift tax exemption. So, if one spouse doesn’t utilize their full exemption, the surviving spouse can effectively double their exemption amount with regard to estate tax liability. For married couples, portability offers a […]
Pet Trusts in New Jersey and New York: A Practical Estate Planning Tool
For many of us, pets are more than companions—they are members of the family. Yet they are often overlooked or inadequately provided for when it comes to estate planning. A pet trust offers a legally enforceable way to ensure that your animal continues to receive proper care if you become incapacitated or pass away. As […]
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
Let`s get in touch!
Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!
