At some point, every owner leaves his or
her business, voluntarily or otherwise.
After building a company and dedicating your best years to ensuring its success,
you will eventually step back and exit. At that
time, you want to receive the maximum
return to accomplish personal, financial,
income and estate-planning goals.
“If you’ve given yourself time and executed all of your planning steps, you can exit
on your terms versus being forced or
rushed into an exit, which ultimately will
prevent you from accomplishing what you
want,” says Joel J. Guth, an advisor in the
Citi Family Office at Smith Barney, a division of Citigroup Global Markets.
In previous issues, Smart Business spoke
with Guth about exit planning and the steps
necessary to ensure a successful exit. Here,
he summarizes the process and addresses
what’s next after the sale is complete.
What are some consequences of not setting
objectives and carefully planning for an exit?
Mainly, you could feel seller’s remorse. You
walk out and realize, ‘I’ve got nothing to do
with my time. I shouldn’t have sold the business. It wasn’t about the money. This is my
passion in life.’ Or, you sell the company and
realize that you can’t maintain the lifestyle
you did when you were running the business.
Also, you may underachieve during the next
15 to 20 years in what was capable from the
standpoint of returns, gifting, estate planning
and so on. You must take time to define your
objectives before exiting the business.
Otherwise, at the end of the game, you will
regret that there was so much more you
could have accomplished but didn’t.
What steps must owners follow before they
even think about selling?
Timing is the key here, and many owners
work backward when exiting. They have a
deal on the table, then they set objectives, figure out how much money they need to sustain their lifestyles and what to do with liquid
assets. You should work through the exit
planning process first, and then structure a
deal that will accomplish your objectives.
Some steps to guide you through exit planning include: set personal and business objectives; determine the business value and
price; preserve, protect and promote value;
sell to a third party or transfer to an insider;
create a contingency plan for your business;
and establish a wealth preservation plan.
After the sale, is the owner truly ‘retired’?
The way to think about an exit is that you
are really transferring from one business to
another. Your first business may have been
manufacturing. Then, you were managing
assets that were tied up in the company.
Once you monetize those assets into liquidity, your investment still requires careful management. You take on the role of being the
CIO of a liquid pot of assets. You are in charge
of an investment company rather than a manufacturing company.
What struggles do owners face when they
become CIO of their liquid assets?
When you make that transition, you’re
forced into a role where you’re less experienced. You may have been running a manufacturing company that sold products all
over the world. Maybe you were the industry
leader, and there was nothing about that business you didn’t know. But once you sell that
business for several million dollars, you are
now in the investment business. You do not
have near the knowledge in stocks, bonds,
hedge funds and municipal bonds as you did
in manufacturing. There is a learning curve.
What steps can help an owner manage this
‘new business’ successfully?
Take the same approach as you did when
running your company. Write a business plan
for how you’ll manage your investments.
Establish clear goals and objectives, and
devise tangible measurements to gauge your
successes. Partner with people who can help
you learn as you transition into this new role,
which is one you’ll maintain for the rest of
your life. Enlist in a proactive accountant —
someone who is used to dealing with wealthy
families. Find an attorney that is in tune with
tax and estate issues and a reputable wealth
management advisor. By aligning a team of
professionals who can work together, you
can accomplish the goals you set as you were
planning your exit from the business.
Citi Family Office is a business of Citigroup
Inc., and it provides clients with access to a
broad array of bank and non-bank products
and services through various subsidiaries of
Citigroup Inc.
Citi Family Office is not registered as a broker-dealer or as an investment advisor.
Brokerage services and/or investment advice
are available to Citi Family Office clients
through Citigroup Global Markets Inc., member SIPC, and Citicorp Investment Services,
member NASD/SIPC. All references to Citi
Family Office Financial Professionals refer to
employees of Citibank, NA, Citigroup Global
Markets Inc. and/or Citicorp Investment
Services. Some of these employees are registered representatives of either Smith Barney,
a division of Citigroup Global Markets Inc., or
Citicorp Investment Services that have qualified to service Citi Family Office clients.
Citigroup Global Markets Inc., Citicorp
Investment Services, and Citibank, NA are
affiliated companies under the common control of Citigroup Inc.
JOEL J. GUTH is an advisor in the Citi Family Office at Smith Barney, a division of Citigroup Global Markets. Reach him at
[email protected] or (614) 460-2633.