Whether you plan to pass your business on to the next generation, hand it off to a partner, or sell it altogether, succession planning is essential to a smooth transition. Protect your legacy by developing a succession plan before you need it, and by considering the following tips to help you develop an exit strategy for your accounting business.
When my husband, Phil, and I started our first business in 1997, we still were in law school and had $100 in our bank account. Working from a cramped two-bedroom apartment, we did everything from sending customer packages to answering phones ourselves, while always providing the best service we could. As demand for our business incorporation services grew, so did our reputation, and in 2005 software giant Intuit acquired our business for $20 million. It was an entrepreneurial dream come true—or was it?
The new owners assured us nothing would change and that we’d still be running the company. However, in reality, a lot changed. We soon realized the no-frills way we were used to running the company was not going to work with our new, Fortune 500 bosses. Our excitement at the sale quickly turned into frustration and boredom. But what could we do? A non-compete contract stopped us from starting a similar business for three years, and frankly, being “retired” held no appeal for us.
If you don’t have an exit strategy from the moment you start your accounting business, you are not alone. According to the UBS Investor Watch Report “Who’s the boss?” 48 percent of business owners have no formal exit strategy.
We were among them. We started our business from a need to feed our work ethic and to help people incorporate their businesses, not in order to sell the business someday and get rich. When that opportunity did come our way, it was too big a windfall to pass up. So, we jumped at the chance—without giving much thought to the consequences.
Even if you didn’t start your business with the goal of selling it, planning an exit strategy can give you, your employees, and your family peace of mind. And, if you experience a great opportunity like we did, you will be able to assess it calmly based on how well it fits into your exit strategy.
To create your exit strategy, you’ll need to do some soul-searching and get input from your attorney. However, as you craft your plan, here are three lessons I learned about exit strategy planning that can benefit your accounting business.
1) An Exit Strategy Doesn’t Have to Mean Retirement
By the time we turned 30, we had sold our first business. If you know spending endless days on the golf course or at the beach isn’t for you, create an exit strategy that allows you to keep doing what you love—starting and running businesses. That could be a business in a similar industry, or something completely different based on a hobby or passion. Whatever it is, make sure your exit strategy includes a plan for starting your next endeavor. After our non-compete agreement ended, Phil and I started a new business, CorpNet—and we’ve been going strong for nine years.
Of course, you can also create an exit strategy based around retirement. The key is knowing your goals for retirement. If you plan to keep running your business until you’re 70 years old and live frugally after you retire, you’ll have a different exit plan than if you hope to retire at 55 and travel the world in luxury. Calculate realistic financial projections for how much money you’ll need to retire comfortably on your terms.
2) Plan for Succession
Part of your exit strategy is deciding who will take over your accounting business. All too often a family business is left to a surviving spouse or child with no business—or industry—experience. Since an accounting business requires professionals to take it over, careful succession planning is essential. That means developing a succession plan before you need it so that you have input into how your company operates even after you’re gone, and to groom your successor to continue growing the business.
Talk to a lawyer about different methods of transitioning the business to the next generation (or, if there is no next generation, of bringing a partner on board).
3) Don’t Jump at a Buyout Offer
Even if you aren’t hoping to sell your business for millions of dollars, such an offer could come along. Part of being an entrepreneur is being flexible and able to roll with whatever life brings you. But that doesn’t mean you should jump at the chance to sell your business.
Negotiate carefully with the assistance of your attorney to make sure the terms of the buyout will advance your goals. Will you have a say in how the business will be run? Will you have a say in budgets and managerial style? If the answer to these questions and others like them is “No,” then you need to think twice about whether you want to sell your business—or whether these are the right people to sell it to.