Postbulletin.com: Rochester, MN

Postbulletin.com: Rochester, MN

7/28/2010 10:24:27 AM
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Planning how you exit your business is just as important as planning how you start it. This comes as a shock to many business owners.

But you need to think of this as a key element of long-range planning for your business. The goal is to maximize the value of your company before converting it to cash and minimize the amount of time consumed.

One needs to think of getting out of business as a process. The length of time required to complete the process is directly related to the complexity of the business and the circumstances underlying this decision to get out of business. I suggest that to accomplish the goal of "maximizing the value of your business," the process needs to include the following

Here are the first steps; the second half will come in next week's column:

1. Reach agreement and obtain authorization from owners to dissolve your business entity. Agreement and authorization to dissolve a business must be established under some acceptable, governing set of rules, such as the bylaws or partnership agreement. It is best to settle disputes quickly and document any terms and conditions that apply.

2. Designate a leader and organize a team. Authority and roles should be clarified. The owner may be the only team member for a home-based business. For a large entity, however, the team may consist of the executive management team and important functional managers whose expertise is not represented: finance, human resources, legal. This group should be as small as possible for efficiency and large enough to include the expertise required to cover the basic planning issues.

3. Engage professionals and consultants as team members. For most small businesses, this group consists of the firm's legal counsel, CPA, and a business broker or valuation expert. Professional expertise and advice in these areas will contribute to a smooth process and improve the outcome. Perform a thorough review of business and identify problem areas. Establish and maintain a problem list to focus on. Determine the condition of the firm's records. Review transactions. Problems extend the timeframe and cost money.

4. Prepare a list of assets and perform a physical inventory. The inventory is very important input to several activities. It is used to establish the value of the business, make decisions, and manage disposition of assets, and it becomes the basis for tax calculations and tax returns. Perform a valuation of the business. It is difficult to make prudent decisions without knowing the market value of the business and its assets.

5. Prepare a detailed plan and assign responsibilities. Develop a schedule for implementation. A schedule provides the ability to measure progress, estimate completion of critical steps, and project the end of the process. The schedule is also extremely useful for managing cash flow during this uncertain time.

6. Release announcements and notices. This step is about timing and legal notice. At some point, interested parties must know what is happening: market, competitors, customers, vendors and suppliers, professional service providers, consultants, trade groups, employees, media, creditors, and contractors. The notice should designate an official point of contact for questions or inquiries.

7. Implement the plan. This is where momentum and activity builds. Things happen very quickly. Without the planning steps, an important degree of control is lost. When that happens, net value is usually decreased in some substantial way.

Remember that you can learn more about managing your small business, by contacting SCORE, America's free and confidential source of small business mentoring and coaching.

Dean Swanson is a volunteer SCORE counselor and past chairman of the Southeast Minnesota SCORE chapter.