There are many reasons why you might decide it is time to sell, close, or hand your business over to someone else. Succession planning is just one aspect of your "exit strategy."
Thinking about leaving your business and making plans for your exit are tough, especially if you have worked long and hard to grow your business and make it successful. Make the process a little easier with the right preparation.
Plan Your Exit Strategy
Long before it's time to walk away, put a plan in place for what you will do when your career as a business owner comes to an end. Planning for the close of your business covers you in case you experience financial hardship, illness, or sudden death. However, it also outlines what will happen to the business you worked so hard to build and grow when it is time for you to retire.
Who Will Succeed You?
Decide ahead of time who will take over the business in your absence, either unexpected or planned for. Your successor might be a business partner, a trusted manager, or even a family member. Communicate with that person, make sure they are trained in the skills they will need to run the business, and put your succession plan in writing to ensure your venture will be in good hands.
What About Retirement?
You invest in retirement plans and disability insurance for your employees. Make sure you make those same financial investments in yourself, as well. Talk with your bank about setting up an IRA or other retirement plan that will meet your needs and allow you to save for the future.
Also, don't neglect disability insurance. As a small business owner, you stand to experience traumatic losses if you suddenly can't work. Talk with a financial advisor about a policy that will guarantee you some income and keep your business running should the unexpected happen.
When it's Time to Sell or Close
Whether you are ready to retire or are exiting your business due to bankruptcy or forced liquidation, the situation has a large impact on your employees, your tax liability, your assets, and your business structure.
This is a time to seek legal counsel. A qualified lawyer experienced in business law will be able to advise you on the best exit strategy and ensure you meet all your financial obligations as your business closes. You might also seek advice from accountants, business brokers, auctioneers, tax experts, bankers, the IRS, and other financial experts.
Your business must be dissolved legally and in accordance with the guidelines you established when you created your business. You also must cancel registrations, permits, licenses, and registered business names with the proper authorities. If you fail to dissolve your business correctly, you may still be liable for taxes and other payments. That is one reason it is so important to seek out qualified financial guidance as you make your final preparations.
Finally, you will issue your employees' final paychecks, file your final tax returns, and close out all your business accounts, lines of credit, credit cards, and debts. If you don't have enough money to meet all the financial obligations involved with closing your business, you may consider filing for bankruptcy. Talk with a legal professional and an accountant about the legal ramifications and obligations associated with bankruptcy filing so you can decide if it is the right move for you.
Keep in mind that you may need to maintain tax, employment, and other records after your business has closed. Plan to keep the financial records pertaining to your business for 3-7 years.
Keep Your Records
First Commonwealth Bank and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.