As a business owner you know that, eventually, the day will come when you decide it’s time to leave your company – a transition that will likely involve the single largest financial transaction of your life. Extensive planning, which will affect how you do business today, is critical to a successful exit.
And, of course, maintaining your lifestyle in the next phase of your journey is dependent on your successful exit. Yet you just can’t quite get around to starting an exit plan. Have you stopped to consider how many futures, in addition to your own, may be riding on your exit plan?
If you’re retiring, you may be planning to enjoy much of your time with family – a spouse, children, grandchildren, and extended family. Of course, you want their lives to be as comfortable as possible and you want to be able to experience the adventures and special times with them that you’ve dreamed of. Perhaps you plan to help your grandchildren attend college or take a trip abroad. Maybe you hope to keep the business in the family to provide for the future prosperity of your loved ones, but you’ve not decided quite how that’s going to work. Are family members already involved? If not, do you know if family members are interested in the business? Might the absence of a plan, with decisions left to your loved ones, create a rift within the family?
You’ve worked hard to find the right people for each position in your company, especially those who are key employees. You’ve built a culture that has created a cohesive comradery that sometimes feels like a second family. Wouldn’t it be great if those specially chosen people who’ve been so instrumental in your success could feel secure about their futures with your company? Having a plan in place for that future is a great way to retain those crucial employees to run your business now, but will also ensure a seamless transition to a new owner upon your exit.
Your community and/or region depends on your business for employment and/or products or services. Your company contributes to the balance of business in your area. Without it, certain choices for consumers or other businesses would be eliminated, impacting the micro-economy. What would the loss of your business mean to local causes or charities you support?
The ripple effect of an exit plan – or lack thereof – is far-reaching. With an exit plan in place you’ll leave a road map that family and employees can follow and from which the community will benefit. Following are some guidelines for getting started.
When should you start an exit plan?
It’s time to start an exit plan if any of the following apply:
• You are age 45 to 55 and control 70% or more of the ownership interest in your business
• Your personal net worth is tied closely to the value of the company
• You are actively involved in the financial management of your company
• Your business has a management team in place
What does exit planning involve?
Following are the 7 steps of the exit planning process.
Step 1: Set exit objectives and lay the foundation for exit planning
Begin by identifying your exit date and write it down. That might be 5, 10 or even 15 years in the future. You’ll determine the state and value of your company today and where it needs to be at the time of your exit (your GAP). You’ll also develop an advisory team.
Step 2: Quantify financial resources
Identify business and personal financial resources, assess the value of your business, understand your current and projected cash flow, and consult with your advisors.
Step 3: Maximize and protect business value
Now, you’ll begin to take a closer look at your business value drivers, and put together a plan to maintain them.
Step 4: Consider the potential benefits of ownership transfer to third parties
Explore the possibility of transferring the business ownership to a third party. There are many pros and cons to this type of transfer, and you and your advisors will discuss the best solution for the company and the family.
Step 5: Consider ownership transfer to insiders
Perhaps there are co-workers, key employees or family members who might be a good fit for ownership once you exit. There are various insider transition strategies, including bequeathing the ownership, bonusing it, gifting it, and more. You and your advisors will discuss the best strategy for you.
Step 6: Consider the benefits of business continuity planning
Business continuity planning involves achieving your business objectives even if you don’t survive the exit and ensures survival of the business for the benefit of everyone.
Step 7: Create a well-balanced personal wealth and estate plan
This step addresses the protection of your personal assets, the management of wealth both now and in the future, and the promotion of harmony within the family.
Exit planning may seem to be a daunting task. But exiting is inevitable for every business owner. The more specific your plan, the more successful your departure from your business will be. Contact me for a complimentary review of where you are in the exit planning process and to discuss how you can make it a seamless one.