Exit Planning 101
Like it or not, at some point you must leave your company and move on to the next phase of your life. Are you ready?
The truth is, many business owners are reluctant to think about exit planning. The company is the owner's "baby," and the thought of leaving it in someone else's hands is hard to bear.
Yet, a good exit plan can ensure that both you and the company are prepared to thrive for many years. Here are some exit planning basics you need to know:
What?
There are several things owners must consider when planning to leave the company. For example, how long do you want to stay in the company, and in what capacity? How much money do you need or want from the sale of the company? To whom do you want to transfer or sell your company? Answering these questions will set the stage for an exit plan that helps you achieve your personal and financial goals.
When?
Exit planning is a process, not an event. Planning should begin at least five years before your intended exit date. There's a lot to be done before moving on, so the more time, the better.
Who?
An exit plan should involve a team of trusted advisors including, at a minimum, your accountant, lawyer, banker and insurance agent. Family members and company executives may also be involved. The CA should serve as the "quarterback" of the team.
How?
Once the owner's personal and financial goals are identified, the real work begins. To assess the financial picture, a business valuation is often required. With this reality check in place, the owner can prepare the business for sale or transfer. This may include shoring up the management team, updating systems and formalizing the appropriate legal and tax structures. (Note that these legal and tax structures must be in place for two years in order to qualify for certain exemptions.)
It is also important to identify the critical value drivers for the company and spend time fine-tuning the business so that it is in prime condition. This may involve diversifying the customer base, getting product development up to speed, improving the physical plant and cleaning up the books.
Finally, the emotional aspects of exiting should not be overlooked. Leaving a lifetime of work and effort can be challenging for even the most ready-to-go executives. Owners should investigate and plan what's next for them. Many entrepreneurs move on to launch or consult with other companies. Those of retirement age may look forward to more golf or beach time.
While exit planning may seem like a daunting task, it is one of the most important ones an owner will take on. It may be difficult to look that far ahead, but an exit plan can make the future possible.
We can help you craft an exit plan that meets your personal and financial needs. Please contact our firm for assistance.
Seven Steps to Exit Planning Success
- Define owner objectives
- Assess business and personal financial resources
- Maximize and protect business value
- Consider sale to a third party
- Consider transfer to insiders
- Ensure business continuity
- Undertake personal wealth and estate planning
Source: Business Enterprise Institute