Regardless of our long-term plans, there will come a point when we will exit our business. For definition purposes, let’s define this terminology: a pre-planned way of extricating yourself from what may prove to be a difficult or compromising situation.
That’s an accurate summary for a remodeling company owner. But there is another description that’s more appropriate—deferred compensation. It’s converting your life’s work into a solid, future cash flow. For most business owners, this business transition will come as a result of planning and at a time of the owner’s choosing. For some, however, it will come as unexpected event due to an accident, illness, or disability. While many remodeling owners know the time will come when they must exit their business, most have done little, if any, planning for that eventual event.
It’s easy to look several years down the road and think business exiting and transition planning are not a priority. The common sentiment is that you can do it later. The issue I see with most remodeling contractors is they never start transition planning. As such, they are risking their biggest investment.
In most remodeling companies, the owners have the majority of their funds invested in one thing—their business. The question becomes how to convert this lifetime of work into a successful retirement, whatever that might look like.
There is no blueprint to do this. This is not a boilerplate process. It is anything but.
Exit and transition planning:
- Takes time
- Requires a project manager
- Requires a professional team
- Is a unique process—not event oriented
- It supports good business decisions and strategic thinking
Like starting a new business, with exit and transition planning you are creating a plan. You begin with the simple question of where you are now, and where you want to be at some point in the future:
- How much longer do you want to work in your business before retiring, moving on, or standing pat holding onto your business along with a steady income stream?
- What is the annual after-tax income you want during retirement in today’s dollars?
To answer these questions, you may need to define retirement and what that means to you:
- You want a new challenge in your life. You are ready to move on and engage with something else that also may fulfill your needs as your previous business had once done.
- Or you want a choice—instead of working 45 to 60 hours a week, you want to work 15 to 20 hours a week, managing key employees with a greatly reduced workload.
You are building a new business model, but this one is called retirement and you get to decide what it looks like. Whether you want to retire in five or 25 years, you need to begin addressing a transition plan because the day might come when you don’t have the time or ability to design this plan. Necessity may force your hand. As such, beginning to understand the key steps in a business transition strategy will fine-tune your thinking and help you make good strategic decisions.
I once read an interview with Michael Gerber, a consultant who assists business owners with putting effective business systems in place. When asked what he saw in the most successful businesses, he said they all knew their exit strategy when they started their new business. They began with the end in mind. They understood that their business was a means to an end, and not an end in itself.
To begin this transition process, you will need to build a team. This is not a time to be the Lone Ranger. You will need to build a “transition team” including:
- A CPA
- Estate and financial planner
- A business transaction attorney
- A business broker or acquisition adviser
They will guide you through the hard questions about your business, such as:
- Is it best to sell my business, or transition to family members or key employees?
- How would I sell my business and to whom?
- How do I prepare my business for sale?
- When is the best time to sell?
- What is my business worth?
This is your life’s work. You have created lasting relationships with past customers, employees, trade contractors, and suppliers. These enduring relationships have value. Don’t let that value just disappear. Transfer your life’s work. Everyone will benefit—you, your buyer, your employees, trade contractors, suppliers, and your past customers. That’s a win-win transaction. PR
David Lupberger has been in the remodeling industry for more than 20 years and is author of “Managing the Emotional Homeowner,” “The Remodelers Turnkey Program,” and “The Home Asset Management Plan.” He can be reached at firstname.lastname@example.org or 303.442.3702.