Parting Company

William Lynott

By Bill Lynott

As the busy owner of a successful restaurant, you have more than enough crises competing for your attention. That's one reason why so many of your peers fail to plan adequately for that inevitable day when they will part company with the company. While there is no way for you to know for sure when that day will come, you can be certain that it will come. That leaves only the question of how you will take your leave.

Writing in his newsletter, Exit Planning Review, professional exit planner and author John H. Brown says he knows of only eight ways to leave a business:

Chances are that one of these paths is best for you. But which one? And which one would be disastrous for you or your heirs? Whether your retirement is just around the corner or years away, you owe it to yourself to begin considering these questions right now. "A well-designed exit plan has many advantages," says business intermediary Richard H. Marsh of Jenkintown, PA. "Among other things, a good plan will help the owner to maximize the value of the business. It will also, make it possible for the owner to leave the business under his own terms at the time of his own choosing."

"The number one mistake in exit planning," says exit planning professional Greg Austin, "is waiting too long to begin." Austin, a principal in Clayton Capital Partners, Saint Louis, says that waiting until it's too late to do a thorough job in exit planning often forces owners to sell their businesses at a disadvantage.

In some ways, it's understandable why a restaurant owner will neglect planning for the future. "With so much time spent keeping customers happy, dealing with human resource issues, ensuring that there's cash to pay the bills and still trying to eke out some semblance of a family life, most owners neglect planning for their eventual exit," says Austin. "That's unfortunate, because one thing is certain: every owner must eventually exit the business."

"Without an exit plan prepared in advance," says Marsh, "owners who reach the point where they are emotionally ready to leave the business often do not know what to do or where to begin."

WHAT IS AN EXIT PLAN?
According to Austin, most business owners have one or more of the following:

"While these items are key ingredients in a formal exit plan, no single item is a plan in itself," says Austin. "A well-prepared plan will use a team of professional advisors—attorney, CPA, financial planner/insurance professional— all focused on meeting the business owner's exit goals."

YOUR EXIT PLAN WILL AFFECT YOUR BUSINESS PLAN
In his book, How to Run Your Business So You Can Leave It In Style, Brown says that owner-based goals for exit planning fall into three broad categories:

Let's say that your retirement plan includes the hope that you will be able sell your business to an outsider or competitor for a tidy sum. In that case, you will want to do everything possible to build the market value of the company. That may include such tactics as making significant capital investments in facilities or equipment, and creating marketing plans designed to ensure steady growth.

However, if your long-range plan centers on passing the business to a family member with less experience, you may be more interested in the creation and implementation of internal systems designed to run smoothly without benefit of your personal oversight.

If you expect to divorce yourself entirely from the operation of the business once you leave, you'll probably want to hire and train management or supervisory people who have the sort of skills and interests that will be missing once you take your leave.

And don't forget your financial needs. If you expect to add to your retirement fund with a hefty chunk of money from the sale of your business, that could be a problem in a sale to a family member, or even a partner or employee. Where will that money come from? If the buyer can't come up with it, an expensive loan could prove to be a roadblock to the sale.

WILL YOU DISAPPEAR OR STICK AROUND?
Perhaps you've had your fill of the pressures, stresses and headaches that go along with carrying the entire load yourself, but can't stand the idea of retiring to the garden or golf course. In that case, you may find yourself looking for a buyer willing and anxious to take advantage of your irreplaceable experience and knowledge. This could mean a sales agreement that includes your continued participation as a paid consultant. If that sort of arrangement is on your mind, now is the time to crystallize your thoughts on how it can be arranged.

WHAT HAPPENS IF YOU DIE IN THE SADDLE?
We don't like to think about it, but, no matter your age now, there is always the possibility that you may depart this mortal coil when you and those around you least expect it. Without proper planning, that unfortunate event could dump an awful mess in the laps of your heirs.

"Although none of us likes to contemplate what would happen if we were to become disabled or die suddenly, a good exit plan will have those bases covered," says Austin. "This could include insurance, stay-bonus plans for employees, buy/sell agreements with co-owners or friendly competitors or other contingency planning tools."

And, of course, your exit plan should include enough insurance to allow for continuation of the business, at least until your heirs or partners are able to sort everything out well enough to allow them to stay in business or arrange for a profitable sale.

DON'T ETCH YOUR EXIT PLAN IN STONE
"There is one characteristic common to every wellthoughtout business plan—flexibility," says Marsh. "No matter how certain you are now of just how you want your exit from the business to play out, there's a good chance that you will change some part of your thinking before that time arrives. Nothing is static in either business or personal life. That's why you must be ready and willing to adapt your plan to changing circumstances."

YOU WILL NEED PROFESSIONAL HELP
"Effective exit planning requires input and participation by a variety of professionals," says Austin. " Professionals formally trained in exit planning recognize the importance of allowing the business owner to determine the how and when of exiting, and they understand the power of a team of professional advisors working together to develop an optimum exit plan."

Austin says that a skillfully drawn exit plan will consider not only the financial and tax ramifications for the owner, but also for the business and its new owners. "A good exit plan will also take the owner's family and personal situation into account," he says.

"Unless your business has little value, say under $500,000," says Marsh, "it is likely that a transfer to insiders will involve tax considerations, such as transferring at least part of the business at a low value in order to save taxes. That's where the help of professionals can be critical."

Whether you need a professional exit planner to help you put your plan together is a decision that only you can make. However, professional planners agree that the most important step you can take in exit planning is to get started early. "The day you start your business," says Austin, "is not too early to begin planning for your exit."

William J. Lynott is a former management consultant and corporate executive who writes on business and financial topics for a variety of consumer and trade publications. You can reach Bill at [email protected] or through his website: www.blynott.com.