At one of our seminars, a participant asked me a question that I had never formally thought much about:  Do you have any recommendations for an exit strategy?  People do not often think about ending a business at the time their business is in the beginning stages, but it was is an excellent question.

Most people who go into business for themselves plan to own and operate the business for many years into the future.  If they are in their twenties or thirties and plan to retire from the business when they are in their sixties, an exit strategy is not in their business planning at inception.

One thing I always cover in my counseling sessions with new businesses is the need to have accurate records and the importance of making a profit.  The word “profit” makes clients think of income taxes, which they naturally do not want to pay.  My advice to them is that someday they may want to sell their business and, if they do not make any profits, it will be difficult to get a prospective buyer interested in buying and will certainly reduce the selling price.

When my client wanted to buy a business, the seller told him that her business actually did make a profit even though the books showed losses each year.  She said the business paid many of her family’s personal expenses, writing them off as business expenses; the cash sales were never recorded.  The seller had “robbed Peter to pay Paul”—she was unable sell the business because of the cheating during the years of ownership—not to mention the possibility of going to jail because of tax evasion.  Yes, she would have had to pay income taxes on profits over the years, but now she would have no retirement income from a sale of her business.

If you are a business owner and plan to fund your retirement by selling your business, you are wise to have an exit strategy many years in advance.  Talk to your attorney, accountant, or SCORE counselor about a course of action.

Getting FREE guidance:

Do you need advice on how to turn your hobby into a profitable business?  Do you want to learn more about the IRS rules for business income and deductions?  SCORE wants to be your business advisor.  Call SCORE today and make an appointment to visit with a counselor.

Jean Kruse,
SCORE Chairperson