THE EXIT STRATEGY
Chances are that as retailers you have at least thought about most details of your business operation even if you have never committed them to paper. One area where most retail owners fail to plan is an exit from their store. Regardless of whether you're hoping to sell the store someday, work until retirement or do what you love most for as long as you can, it's essential to plan your exit. There's no worse time to decide what to do with the business than during times of stress and out-of-control emotions.
Instead, make sure you can say goodbye on your own terms. The first things you should do when planning the initial opening of your business is to define the business's goal. Are you planning your business with you, the owner / manager at the helm for (hopefully) many years or are you launching a business with the goal in mind of selling it when it achieves a certain performance? Most retail businesses are launched with a long-term goal in mind. However, you need a clear vision of your goal and a written, working version of your plan.
Consider the "four Ds" of business: death, disability, divorce and departure. This does not mean you need to focus on doom and gloom or anticipate tragedy at every turn. But, lifestyles change, priorities shift, market conditions evolve. By keeping your exit strategy current, you protect yourself, your family and your business from making rushed decisions that may not be in your best interest. For example, the time to consider a pre-nuptial agreement is, obviously, before the marriage. Just consider the divorce of Steven Spielberg and Amy Irving who had an "formal agreement' written on a cocktail napkin. The judge deemed the agreement too informal, threw it out and awarded Irving a hefty settlement. So I ask, is your business safe? Do you live in a community property state? If the unthinkable happened, would you maintain control of your store or would the business be torn apart?
For the small business owner, each one of the four D's has special demands on family, income, taxes, and the transfer and control of assets. An agreement, commonly called buy/sell agreements, can be used to handle the four D's. The concern of the family or income can conflict with the business. The business exists as a separate entity. Reduce conflict by developing mutually fair agreements.
Ultimately, if you plan to retire at some time in the future, your business must support it's current expenses and generate enough additional income to finance that retirement. Seek out a certified financial planner who can help you with retirement planning. It is critical to stay focused on your life's goals as well as the business's goals. If not, your retirement may become delayed or even impossible.
Many retailers plan to leave their business to the next generation. Will the business be left to each child equally? If two children want the business but two don't, who will have control? What if they can't agree? You need to consider these factors now before your lack of planning tears your family apart. That means you need a will. Now. Today. Consider how you will divide your assets if one child wants the "family business" and the other doesn't. If your will simply states "share and share alike" without specifically addressing the business, you have left a huge chasm of gray area that may become a point of contention with your heirs and could result in the store being quickly and cheaply liquidated.
But, what if your heirs don't want the business? At that point you need to consider selling the operation or possibly choosing a successor from outside the family. Even if you plan to work until you die at the helm of your operation, you should still provide for the transition of your business. It is the responsible thing to do. As part of your overall planning, don't forget ways to minimize risks for your employees, vendors, investors and heirs. Proper insurance and legal documentation can cover the costs of succession and ease any tax burden as well as ease the way for the business transfer. Put your important documents in a safe place where your executor can get it but it is safe from natural disasters.
If you plan to be around to train and pass control to an heir or successor, then work together to set a time for this to happen. It need not be a set date, such as June 30, 2013, but can be legally defined and updated as needed. That way, you can teach the next generation now while you have the opportunity. Transition needs to happen at a pre-set time so all parties have the same expectations and needs to be based on written qualifications you have pre-determined.
Finally, consider the shop. Do you have key sales people you'd hate to operate without? Are you the top sales person? Would your business be worth as much if you were not in the picture? Does the day-to-day business continue when you're on vacation or get sick? Businesses that can run themselves independently of 1 or 2 particular people are more valuable than businesses that require the owner(s) to be there each day. It is possible that you need to pull back some and train other employees to perform more of the duties of running the business.
Here's something else to consider: what if you are "only" temporarily gone from the business. Illness or accidents can result in an owner being absent for quite some time. Who would handle payroll? Who would do buying for the store. Who would have authority while you're recovering? I'm not talking about feeling bad and missing a few days of work; I'm talking about major illnesses or accidents that take months to recover from. What happens to the store and the business? Today, start a plan. Consider your employees and think about who could take over the myriad tasks you perform. Who would do what? Do they really know how? Do you have a written procedure (in case it's forgotten) and too make sure something important, like payroll taxes aren't forgotten?
Finally think about your merchandise. Keep if fresh. Plan for and take markdowns as needed to prevent the store from becoming mired in old, less-than-prime merchandise. Let's face it; fresh on-target merchandise moves faster and increases the value of the business.
Here is my list of recommendations. Most are self-explanatory but may require some thought.
1. Incorporate. Make yourself and the business two separate entities each independent of the other (or as independent as possible when you are chief sales person, buyer, office manager, etc.).
2. If there are partners (spouses or a group of business people), set up a buy/sell agreement to allow for each partner to depart the business be it for death, disability or just departure to try something else (like maybe retirement).
3. Determine how to value the company in a manner that can be done at least annually and will meet IRS standards.
4. Review your policies and procedures manual and make sure each job is up to date and has appropriate contact information. If your list of contacts was passed down through generations, you may still have Clyde Hatfield Jr. listed as the contact with the bank when the actual contact today might be Susan McCoy, Clyde's great granddaughter.
Have you planned for your exit? Start today.