Planning Your Successful Exit – and a Bright Future for Your Business
Published on by Harold Kremer in Estate Planning, Transaction Advisory
Business owners get pulled in a lot of different directions, and the demands of the day-to-day sometimes make it challenging to focus on the big picture. But one of the biggest and most important things you can do to ensure your company continues is to start planning your exit well before you plan to step away.
The exit process is complex and requires sophisticated planning to identify and implement the right succession plan, whether it’s an internal transition of leadership or an external sale of the business. For the business owner, one of the biggest considerations is structuring the process to maximize financial return – other factors to consider include retirement readiness, when planning should start, phases of the process, and communication best practices, like when and how to share information about the upcoming exit event.
The different types of business exits
Exit planning is about designing a roadmap for business owners who want to take a strategic approach to eventually leaving their company. Effective exit planning means owners can maximize their financial gain, transition their business to the right person or group, safeguard their legacy, and achieve other important goals.
There are two basic categories of business owner exits: external and internal transactions.
- External Transactions can include selling the business to outside investors or private equity groups. It may also include selling the business to another company with complementary product or service offerings, or even to a competitor that could benefit from a merger or acquisition.
- Internal Transactions also come with a few different options. Owners may choose to sell the business via an employee stock ownership plan (ESOP) buoyed by bank financing, to spread ownership around. They may also decide to sell the business to the management group or a key member of the leadership team. Family-run businesses may choose to sell or gift to the next generation.
Exit planning essentials
Ideally, exit planning should be initiated at least 3-5 years prior to your planned exit to maximize value and ensure a smooth transition, but sometimes the unexpected occurs and the business owner hasn’t had time to plan. In that case, succession planning advisors can help put a strategy in place that can make the most of the current business value and financial position.
Navigating the phases of exit planning
Exit planning includes three key phases – discovery, modeling, and execution.
In the discovery phase, an exit planning team helps the business owner evaluate business, personal, and financial factors that need to be considered in creating a solid strategy. Think of it as a three-legged stool – each element needs to be considered to ensure good balance.
While it may be tempting to focus on the business side of exit planning almost exclusively, it’s important to consider personal and financial goals as well. One major aspect of exit planning is business valuation and maximizing the value of the business before you leave.
Business valuation determines the value of the business as a baseline and can later be used to create new goals. For personal financial matters and retirement planning, a wealth management team will evaluate the business owner’s investments and resources and recommend strategic adjustments.
Once there’s a clear understanding of the business value and other assets available for retirement, tax consulting and M&A specialists will model different exit scenarios for the business owner, as well as suggest additional resources that can facilitate the process, such as attorneys, business brokers, bankers, and other professional advisors.
With the specifics finalized and all in place, the business owner can begin executing the proactive steps of the exit plan.
Communicating your exit plan
Communication is integral during the exit planning process, but business owners may choose to keep certain decisions confidential until more concrete plans are in place. For example, discussing a succession plan with just the key management group early on will help move the process along more efficiently. If everyone in the company learned of the exit before the details were decided, it might cause more confusion than clarity.
Once goals are established and a plan is in place, leadership should then inform the rest of the organization and communicate what it means for them. Communicating the exit plan clearly to the entire business in a planned and controlled manner facilitates a smooth transition with minimal to no impact on productivity.
Starting an exit plan?
While some of the basic steps might be the same, it’s important to point out that no two exit plans are alike. Every business owner has a unique situation, but skilled advisors can help create a plan that optimizes the exit and smooths the transition.
Many owners don’t have personal experience with exit planning since it’s often done only once in a career, so it’s important to have a knowledgeable, attentive team on your side. Need assistance developing your own exit plan? Our certified exit planning pros are always here to help. Get connected today.
You might also be interested in this video overview of exit planning, or a deep dive into business valuations and how they work – and in getting the details on succession planning for success.
