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Business Exit Strategy
Do you have a realistic exit strategy for your business? One that will give you financial security?
Or do you just plan to turn the lights off one day, unplug your computer and call it quits? Or maybe you’re not sure.
Well, if you want more financial security than cashing your last paycheck, you’ll love today’s guest, Ashley Micciche – CEO of True North Retirement Advisors.
What You’ll Discover About a Business Exit Strategy (highlights & transcript):
* How to control your business exit strategy [03:50]
* Maintaining confidentiality while planning a business exit strategy [07:02]
* 4 Financial items to include in a business exit strategy for financial security [10:26]
* Most common business exit strategy hiccups [15:12]
* And much MORE.
Hanna Hasl-Kelchner: [00:00:01] Do you have a realistic exit strategy for your business, one that will give you financial security? Or do you just plan to turn the lights off one day, unplug your computer and call it quits; or maybe you’re not sure? If you want more financial security than your last paycheck, then stay tuned. You’re going to love my next guest.
Announcer: [00:00:23] This is Business Confidential Now with Hanna Hasl-Kelchner. Helping you see business issues hiding in plain view that matter to your bottom line.
Hanna: [00:00:34] …come to Business Confidential Now, I’m your host Hanna Hasl-Kelchner, and today’s guest, Ashley Micciche, helps businesses prepare for transition, helps owners by helping them value their business, establish a timeline and identify any financial gaps, and she does that as co-owner and CEO of True North Retirement Advisors, where she helps create really customized and, more importantly, successful exit plans so that you can get the financial security you deserve from the business you have poured your heart, sweat, soul and tears into.
Hanna: [00:01:10] So let’s get down to business because I have a feeling some listeners maybe should have started this exit plan process already. So welcome to Business Confidential Now, Ashley.
Ashley Micciche: [00:01:20] Thank you for having me. Hanna, I’m excited to be here with you.
BEST TIME LINE FOR DEVELOPING A BUSINESS EXIT STRATEGY
Hanna: [00:01:23] Well, I think this is such an important topic. You know, so many people focus on the glamor of the startup and all of that, and that is exciting to build a business from scratch and watch it succeed and grow, but there comes a point in time, whether it’s because of health issues, other interests that have taken over where somebody wants to exit a business. And so when it comes to developing a business exit strategy, what kind of timeline should a business owner be realistically looking at?
Ashley: [00:01:55] Stephen Covey always said, “Begin with the end in mind.” and I think that’s very true in a lot of endeavors, especially in business. But it’s probably not that realistic that owners, when they’re scraping by in those early years and it’s lean, they’re not thinking about their exit or their retirement, they’re just trying to survive.
Ashley: [00:02:14] So but if you can start as early as possible thinking through that, making sure you’re doing the right things, documenting processes, thinking about what you want that exit path and that timeline to look like, who’s the person or the entity that you want to sell your business to or, you know, employee? So, thinking about all of those things early on, so you are kind of always progressively working towards that exit is the wise thing to do. But realistically, a lot of owners come to me and we start having these conversations when they’re very ready to retire. Some of them are just like, you know, I needed to start doing this years ago.
Ashley: [00:02:57] So usually, you know, we’re human. We procrastinate on a lot of things, and exit planning for your business is no different. So I would say, you know, a good five to 10 years gives you the longest runway to be able to plan the most and do the most things and starting far enough in advance to get you the best chance to have control over your exit.
Ashley: [00:03:21] And I think that’s where a lot of business exits go sideways or a lot of business owners things go sideways for them is because maybe they have a health issue come up or they have something else that they completely lose control over their exit because of circumstances outside of their control. So the more you plan in advance them where you do and the sooner you start, the more you’re going to be able to kind of pull those different levers and give yourself the best chance of a successful exit.
CONTROLLING YOUR BUSINESS EXIT STRATEGY
Hanna: [00:03:50] Well, I think everyone wants a successful exit and what success looks like might be different things to different people. But I’d like to come back to this concept of control that you talked about because certainly an entrepreneur, a big part of the makeup of someone who strikes out on their own and starts a business, they have to have an element of control.
Hanna: [00:04:13] You can’t just start a business and have it go any old which way. So, controlling the exit, I’m sure, is an important factor. How do you get control? Where do you start? You know, if granted, five to 10 years. But what would be the smart first step in order to get control and keep control?
Ashley: [00:04:33] Where I start with my business and our clients is to actually start with valuing the business was always what we do first because we have to be on the same page about what the business is worth. If you think that your business is worth $5 million, but it’s really worth half a million dollars, then we have a problem, and we need to take steps, maybe to grow the business and focus on that before we can pivot and start thinking about and making taking steps towards our exit.
Ashley: [00:05:00] But some good examples. Once you know what the value of your business is, then usually where we’ll go next is start having conversations about who is your ideal successor? Is that an employee of yours? Is this a family business? Is there may be a friendly competitor or another third party that you want to sell your business to? And that’s going back to the issue of control.
Ashley: [00:05:27] That’s an important thing is, is having some control over your timeline and the person that, or entity that you want to sell your business to or transfer your business to. That takes some thoughtful planning and making sure that that’s a good match, especially in an internal succession, most especially with family businesses. You want to set that next generation up for success.
Ashley: [00:05:53] And a lot of times I think owners and family businesses will live in denial a little bit. Maybe that next person, the next generation is not well-equipped to run the business. Maybe they don’t even want it, but they’re afraid to kind of speak up because there may be the third or fourth generation in that family business, and they don’t want to be the one that backs away from it or they feel obligated to it. So I –
Ashley: [00:06:16] I understand how that goes. You know, I’m in a family business with my father. He and I own True North Retirement Advisors, which is our firm. And there’s lots of dynamics with running a family business, but it applies to all businesses as making sure that you’re picking someone who’s best suited to take over rather than just the whatever you have in front of you.
Hanna: [00:06:41] I can appreciate that a family business adds a whole ‘nother layer of dynamic to what is already a pretty complex set of relationships in a business. So kudos to you and your family for having a family business. I think that’s very commendable. But let me ask you about this.
MAINTAINING CONFIDENTIALITY WHILE PLANNING A BUSINESS EXIT STRATEGY
Hanna: [00:07:02] You know, you say it’s helpful to know who you want to sell to. And, you know, a friendly competitor or whether it’s an employee buyout or whatever the structure of the deal is. If that’s a goal and you want to set it out there, you know, five 10 years in advance, what do you recommend a business owner do as far as maintaining confidentiality and not letting people treat him like a lame duck?
Ashley: [00:07:34] Yeah, this is a great question. Confidentiality and not showing your hand is very, very important because sometimes you know your competitors can sense that they all think that you’re on the way out. You know, they may try to undercut you in other ways. It can – it can be complicated. But I think what owners can do in those early years is they can at least eliminate certain things or move to the top of the priority list.
Ashley: [00:08:04] What their ideal path to exit is. Is it employees or a group of employees or a single individual? Or maybe it’s an ESOP, which is a group of employees who collectively own the business? Or maybe you already have another owner and you want to transfer that business to another owner. I had a I had a client who just retired last year and there were two other owners, and so he exited via transferring to the those two other owners. So sometimes there’s that internal succession that seems very clear.
Ashley: [00:08:44] Same thing. If it’s a family run business and there’s another family member who is ready and willing and able to successfully run the business after your departure, but sometimes you can eliminate those things too. Maybe you don’t have any family actively involved in the business right now and no future prospects, so you can eliminate that. But what we don’t want is we don’t want to get to the end and like, I don’t know, maybe a quarter of business owners, they don’t they don’t ever identify a successor.
Ashley: [00:09:17] And so it leads to just kind of this rudderless ship that’s floating in the ocean. And then what ends up happening is they just wind everything down and close up. When they’re ready, just stop working. But then they’re leaving a lot of opportunity on the table. Maybe you did have a business that had value and could transfer if you would have just taken the time three to five years to set yourself up for a successful exit and transferring the business.
Ashley: [00:09:45] A lot of business owners would like to exit in the next few years, but they don’t have the financial security yet to be able to do that. So how do you planning in advance, even if you have a business that’s not worth all that much, maybe there’s some other things you can do on the personal side, whether that’s saving more or making sure you’re retiring, that that retirement date is going to work out and pencil out for you.
Ashley: [00:10:11] So there’s a lot of things that that business owners really need to think through thoroughly before they start having conversations with anyone outside of their advisory or legal team.
4 FINANCIAL SECURITY COMPONENTS TO INCLUDE IN A BUSINESS EXIT STRATEGY
Hanna: [00:10:26] Well, you mentioned this concept of financial security, and I get a sense in, you know, entrepreneurs that I have talked to, that the businesses they build, they believe, is the ticket to their retirement that they’ll sell it or, you know, somehow be able to exit with financial security.
Hanna: [00:10:45] So, let’s explore what financial security can look like, especially if a business didn’t establish for itself a 401(k) retirement plan where you know they were able to contribute on a tax deferred basis and had some kind of matching from the company. Help me explore that a little bit.
Ashley: [00:11:05] Sure. There’re basically four key areas that determine, do you have enough financial resources to transition to the next phase of life? Now, for most business owners, despite the serial entrepreneur, that’s very kind of sexy to talk about these days where I just buy a business, I grow, I sell it and I move on to the next.
Ashley: [00:11:26] Most business owners are just not doing that. They’re spending 10, 20, 30 years head down, growing their business with the hope that one day they will be able to sell it or retire and have enough money to live their retirement. And so for most business owners, do I have enough to transition into the next phase of my life, which is most often retirement? So it comes down to several factors.
Ashley: [00:11:50] One is just assets. So, you mentioned 401(k), that would be considered part of that asset pool, but also your business value. So again, it goes back to we got to know what the business is worth right off the bat. Get on the same page about that and what you could sell it for, and not just what it’s worth right now, but what is the after-tax value of your business? Because what it’s worth right now and what you’ll have in your hand after you pay taxes are usually two very different numbers.
Ashley: [00:12:19] And then other assets. So 401(K) other investments, maybe you have a cash balance plan, maybe you have an income stream, or if you’re selling to an employee or owners, they’re going to pay you out over two, three, five years.
Ashley: [00:12:35] That’s very common. When owners exit is, they won’t get this large lump sum pay day, but they’ll get that value paid out to them over a number of years because the buying owner just simply can’t afford to pay you a million or five million or whatever that is right up front. So there’s assets.
Ashley: [00:12:56] There’s also your retirement date, which is often overlooked. A lot of people don’t realize that when they’re closer to retirement, if you just work six months, another year, maybe two years, a lot of those problems, if not having enough money will go away. And there’s a there’s a lot of reasons for that. But if you think about, you know, just waiting until your Medicare age 65 are waiting until you can collect your full retirement benefit from Social Security at your full retirement age or even waiting until you’re 70.
Ashley: [00:13:26] So those things plus less years in retirement is less years that your portfolio is going to have to provide and sustain an income stream for you. So there’s a lot of this positive ripple effect that happens when you just retire later and then looking at other income sources in retirement.
Ashley: [00:13:45] A lot of business owners, their golden goose is they maybe they have this property that their business operates out of, and the business itself may not be worth all that much, but maybe they have this property in a really desirable area that that’s worth three million or $4 million to a developer or something like that.
Ashley: [00:14:05] So I’ve had a number of clients who have retired and exited their business with very little in the business, but a lot of financial resources because they owned that property. So what are those income sources? Are you going to maintain that building and keep ownership of it and collect an income stream? Or are you exiting from that business property as well? So those are all considerations.
Ashley: [00:14:28] And then the last one which no one ever wants to talk about is your lifestyle and retirement. How much money does it take for you on a monthly annual basis to live the lifestyle that that you want a lot of business owners?
Ashley: [00:14:41] If they’re successful in their business, they usually have a very high income, and it’s shocking to come out the other side and realize that, gosh, the assets that I have, these income sources that I have, they’re not enough to provide the same kind of income that I was used to getting when I was working in my business. So all of those factors come together to form this foundation of do I have enough in order to transition to the next phase of life?
MOST COMMON BUSINESS EXIT STRATEGY HICCUPS
Hanna: [00:15:12] Lots of moving targets there. Very interesting. So, let me ask you this when a business owner comes to you and says, OK, Ashley, you do this retirement planning, I want to retire and let’s say the date can be up in the air. But what kind of issues do you see come up most often? That where they go, oh, I didn’t think about that.
Ashley: [00:15:37] Gosh, that’s a great question, and it varies so much. I think a lot of business owners who are savvy and running their business. They know what to do to grow and increase their business value, and that’s kind of their area of expertise. I think a lot of business owners, because that’s obviously one way to close the gap and what you need financially, right?
Ashley: [00:15:55] If you have a business that’s worth a million or two million today and you can grow to five million. That would be time and energy well spent at growing the business value. So usually that’s what we look first. But we’re I think a lot of owners overlook opportunities is something you’ve already mentioned, which is in their retirement plans. This could be 401(k), but there are other retirement plans as well that business owners have available to them.
Ashley: [00:16:23] And I think they have a hard time thinking outside of the traditional 401(k) or simple IRA. But there are lots of ways that business owners can save for their own retirement and get a tax deduction for the business for doing so. The average American who doesn’t own a business has limited ways to save for retirement in a tax efficient way, right? If you have a 401(k) at your company that you work for.
Ashley: [00:16:52] Great. If you don’t, then you’re going to be limited to a few thousand dollars a year in an IRA or a Roth IRA. And that’s kind of it. And so the business owners, there are if you tack on, let’s say you have a 401(k) currently in place and you’re saving in your maxing that out and you’re doing everything you can and you still have more money that you need to and want to save and have the ability to save.
Ashley: [00:17:16] You could bolt on a cash balance plan to your 401(k). You don’t have to reinvent the wheel and all of a sudden you can save, especially if you’re close to retirement., you could save well over $100,000.00- $200,000.00 per year and get a tax deduction for your business for doing that. So that’s just one example, but there are others as well that business owners can take advantage of to save more in a very tax efficient way for their business.
EXPECTING A BIG BUY-OUT AS PART OF A BUSINESS EXIT STRATEGY
Hanna: [00:17:45] That’s good to know. Now, you know, you mentioned startups, you know, on the serial entrepreneur, and I’m sure that there could be some entrepreneurs that are listening who think, “Oh, well, you know, I see these headlines all the time about startups or relatively new businesses get bought out by these big companies for big bucks.” What are the odds of that, Ashley?
Ashley: [00:18:13] Um, yeah, it’s quite low. Those are always in the news about, especially with those tech startups, right? You know, five years ago you had a company that no one heard of, and then all of a sudden it sells for a billion or 100 billion or, you know, well, maybe not that much, but you know, you get what I’m saying. So. And they just created something incredible from nothing.
Ashley: [00:18:39] And entrepreneurs are dreamers, and they’re usually optimistic people. So it’s not surprising to me at all that entrepreneurs dream big and think that they’re going to change the world, and some of them actually do. But, you know, it’s important to kind of rein that in a little bit without crushing your dreams because everybody else, I think, is going to be crushing on your dreams, too. I mean, there’s a lot of naysayers.
Ashley: [00:19:05] If you’re doing anything unique or different, there’s always going to be naysayers and people telling you that that’s silly or you can’t do it. So it’s not my place to say whether I think someone’s going to strike it big or not. I’m as surprised as the next person when a lot of these businesses hit home runs and sell for mega, mega bucks.
Hanna: [00:19:24] Well, there’s nothing wrong with dreaming big, but it’s always good to be realistic. So I really appreciate you laying out some of the things that a business owner needs to consider when it comes to a realistic exit strategy for their business. Thank you for that. There’s really been terrific advice.
Hanna: [00:19:43] And if you’re listening and you’d like to contact Ashley to learn more about her or listen to her podcast, The One Minute Retirement Tip, you can find that information on the show notes at BusinessConfidentialRadio.com. And if you found today’s program helpful, share it with your friends. Share the wealth. Let them join you on retirement. Have a good time with a successful exit plan that gives them financial security.
Hanna: [00:20:11] You’ve been listening to Business Confidential Now with Hanna Hasl-Kelchner, and here’s hoping that you have a great day and an even better tomorrow.
When to Start Planning a Business Exit Strategy
Confidentiality and Your Successful Business Exit Strategy
Most Common Business Exit Strategy Mistakes to Avoid
Guest: Ashley Micciche
Ashley Micciche is the co-owner and CEO of True North Retirement Advisors, a family-run advisory firm.
She specializes in the unique needs and challenges that business owners face, and helps them create highly customizable, successful exit plans.
A frequent podcast guest and experienced onstage speaker, Ashley is not your typical financial presenter. Her podcast, The One Minute Retirement Tip, has over 170,000 lifetime downloads. As a four-time humorous speech champion, she brings her award-winning style to delight and engage audiences.
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