In previous articles, entitled Starting and Developing Your Business, we covered the characteristics, challenges and decisions facing a business as it runs through the various phases from establishing the business, maintaining it, reaching success and growth and on to the maturity phase. The last phase is the wind-up of the business. In this article we will discuss the characteristics and decisions the business owner must make once he chooses to exit his business.
Wind-up Phase
The wind-up phase for a given business can be different from that of another business. One scenario could be that the business is still quite viable, but the owner has decided that he no longer wishes to continue running the business for a number of reasons. In contrast, a company may be struggling for various reasons such as increased competition, lack of innovation, risk aversion or other factors. While many business owners may approach this situation and decide to regroup and reinvent the company, we will take the view in this article that the business owner wishes to exit the business completely.
What does it Look Like?
While the business may be in good financial shape, the owner has decided to exit the business while keeping the business operational. The business may be able to function for years to come and continue in a profitable way by taking steps to hold onto market share and make continual improvements and investments to maintain its position in the marketplace. Conversely, it may be that the business has taken hits in recent years as a result of changes in the market. These changes could involve increased competition, changing technologies, changes in the economic conditions or disruptive innovations that adversely affect the industry in which the company operates. In this case, the current owner may not be willing to make the bold decisions and take the steps necessary to rejuvenate his business.
Decision Points
The owner may decide that he will exit the business by putting it up for sale. In this case, he would have to ensure that the value of the business is determinable and measurable. It is important for business owners to be sure that their records are clean. Obsolete inventory and uncollectible receivables should be written off, assets should be recorded at fair value and any debts that are not going to be assumed by a potential buyer should be settled. An owner who is considering a sale of the business should have a team of experts including an accountant, lawyer, broker and possibly an appraiser to help him through the process to ensure it is done correctly and he is realizing the true value of the company in the sale.
In the case of a family business, the owner may turn the business over to a family member. It is very important for a business owner to carefully plan succession to increase the probability of success and a smooth transition. Issues surrounding selection of a successor, training, transition plans and timing of both transferring responsibility and of assets will all need to be planned effectively. This is even more important when there is more than one family member involved. When multiple family members are involved it can be a contentious situation. The owner should ensure that everyone understands the reasons behind his choice of successor and help to define roles and responsibilities going forward.
Finally, the owner may determine that the business is not salable or that no one is in a position to succeed him and therefore the business will be closed. In this scenario, the owner must ensure that all of the remaining requirements are fulfilled legally and commercially, outstanding debts are settled and the business liabilities are paid. The owner will have to make sure that all final taxes are paid, final tax reports are filed and notifications are filed with taxing and stage agencies.
Summary
A business owner spends a lot of time, energy and money building their business. Along the way, many challenges are faced, and transformations and decisions are made to do what is best for the business at a particular point in its life cycle. The wind-up phase is a result of all of that work. Getting value out of the business that you built by way of a sale or a successful transition will be the ultimate achievement in your business journey.
Ms. Roberts is the owner of Business Rx, LLC. She works with business owners who are passionate about improving their business in pursuit of their vision, goals and business success. For more information please visit her website @ http://www.bizrx-advisors.com
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