New Year resolutions often don’t last long because they don’t dovetail with what’s truly important to us. Now that we’re a month into the year, it’s a perfect time to reassess your genuine priorities.
I’d venture that, at the top of that list, is the well-being of your family – including a secure future – and the long-term success of your business. There’s a tried and proven way to address both concurrently that business owners often overlook for too many years.
The solution? Start an exit plan.
Developing the goals associated with an exit plan then mapping out how to get there from here will result in the most thorough business plan possible. An exit plan is best constructed in steps and working that plan will soon become part of your routine.
The seven-step approach to exit planning was developed by attorney and author, John H. Brown, more than 20 years ago, and was adopted by and expanded upon by the Business Enterprise Institute (BEI).
As a member of BEI, I’d like to share the 7-Step Exit Planning Process and BEI’s suggestions for each step. You will find it helpful to work with an Exit Planning Strategist to accomplish these steps, which will chart the path to the future you envision.
But first – choose an approximate date for your exit – it can be adjusted along the way.
- Define Your Exit Objectives
This step involves calculating the target business value you need to attain by the time of your exit, determining how you’ll protect valuable business assets, and creating a plan to develop your management team and retain key employees.
- Identify Your Business and Personal Financial Resources
Determine the current value of the business and its current and projected cash flow. This initial determination of current value is essential for measuring your progress towards the objectives identified in Step 1 and choosing the planning tools that will most effectively help you achieve them.
- Build and Preserve Your Business Value
Using data from your first two steps, you’ll work with your advisor to choose the specific tools that will help you grow and protect business value, including minimizing taxes. This may include updates to financial reporting systems, realigning some employee roles, and protecting proprietary information.
- Assess Whether You’ll Sell Your Company to a Third Party
Consider the pros and cons of selling to a third party. If you choose this route, work with your advisor to optimize your sale price and terms and minimize the taxes you’ll pay upon sale. If you choose instead to retain ownership or transfer the company to insiders, you will skip this step.
- Assess Whether You’ll Transfer Your Ownership to Insiders
Insiders are children or other relatives, co-owners, or key employees who often don’t have the financial resources to pay owners what their companies are worth. Transferring to insiders will require creating strategies to ensure that you receive the amount you need from your business and retain control of the business until you are fully paid.
- Understand and Prepare for Business Continuity
Business continuity planning is coordinated with your lifetime objectives to provide for the achievement of your goals, such as completing transfer of the business to the successor of your choice and ensuring that your family receives the full value for your ownership.
- Protect Your Personal Wealth and Manage Estate Planning
Finally, you’ll coordinate your estate plan with the objectives you identified in Step 1, with an emphasis on tax efficiency in the transfer of wealth and/or the business. This step will ensure that your family receives the annual income needed to fulfill the financial security goals you’ve set.
Your exit may seem far in the future. Yet, as a seasoned leader, you know that the sooner you start, the less daunting the task, and the more control you have over the outcome of what may be the single largest financial transaction of your life.
With decades of experience as both an Exit Strategist and CPA, I can help with all aspects of exit planning and growth and maintenance of business value. I’d welcome the opportunity to help you get a start on your own exit plan. Contact me for a complimentary consultation.
Bob Zarlengo is a certified exit strategist and CPA. More than four decades of experience in public accounting along with expertise in financial reporting, income and estate planning, and tax compliance makes him a valued and trusted advisor to his clients.
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