BUSINESS EXIT PLANNING
What is an Exit Plan
Exit Planning is an integrated multi-disciplinary approach designed to help business owners address all of the business, personal, legal, financial, estate and tax issues involved in exiting a privately owned business.
Why Plan?
You are human – you will exit your business sooner or later.
You face issues you can’t control
Health
Changing motivation
Divorce
Death
“A goal without a plan is just a wish.”
Antoine de Saint-Exupery (1900 - 1944)
Why business owners don’t plan:
Do not know where to begin
May have difficulty discussing financial matters and personal goals
Spending their time “putting out fires”
The process seems too daunting
Don’t understand the benefits
Benefits for you of Exit Planning:
Lowers business risks
Avoids asset concentration
Maximizes the value of the company at time of exit
Avoids over or under valuing of the company
Preserves family wealth for later generations
Lowers or eliminates income, capital gains or estate taxes
Provides strategic options
Creates peace of mind
According to Price Waterhouse Coopers in their “Whose Business Is It Anyway”, 75% of business owners regret selling their business 12 months after closing. Why? They failed to line up 3 key issues:
1. Personal Goals
Typical Personal Goals:
Create a family legacy
Reward top employees
Maintain community presence
Stay involved in the business
Benefit charitable interests
Fund retirement lifestyle
Reduce stress
2. Business Situation
A. Understand what you have.
Business Valuation
Fair Market Value
Market Value
Investment Value
Liquidation Value
B. Enhance what you have.
Increase profitability
Reduce customer concentration
Groom management successor
Increase revenues
Expand market share
Reduce cyclicality
Enhancing employee loyalty and effectiveness
3. Market Situation
How hot is the M&A market
Is third party financing available
How is the economy doing
What are tax rates
What is the forecast for the future
Exit Options
Transfer to family member
Sell to shareholders
Sell to management
Sell to employees (ESOP, etc.)
Sell to third party
Donate to charity
Refinance or recapitalize
Go public
Liquidate the business
The SBA says that 80% of small businesses exit through liquidation. We are sure that is not what you want for your business!
The Exit Planning process is a multi-disciplinary team approach, with the following involved in the process:
M&A Advisor
Financial Advisor
CPA or Tax advisor
Legal Advisor
Estate Planner
Wealth Planner
The Exit Planning Advisor acts as the quarterback of the team, helping the owner determine objectives and developing the overall plan and coordinating the other specific functional planning aspects like tax, financial, etc.
Timing & Process
All businesses should have good strategic and tactical plans - including a plan for the owner’s eventual exit. To get the best result, a good exit plan should have a 2 to 5 year time horizon.
What is the process?
Generally it takes about 6 months to develop a comprehensive exit plan. The implementation of the plan takes from a year to several years. The process is:
You complete a comprehensive questionnaire.
We collect at least 3 years of detailed business financial information.
We meet to discuss the issues identified in the questionnaire.
We do our research and financial analysis.
We present a finished detailed exit plan to you in person and answer any questions you have.
After the development of the plan, we can assist you in the implementation of the plan.
A typical plan includes:
Market-based business valuation
Client goals statement & analysis
Value enhancement recommendations
Exit options analysis & recommendation
Personal action plan
Business action plan
Contingency plan
Much more
Who should be involved in the Exit Plan:
Business owners
Spouses or significant others
Children & grandchildren
In-laws
Key employees
Anyone the business owner feels will add value to the planning process.
Criteria for Exit Planning goals
Specific
Optimistic
Realistic
Short & long term
Measureable
Lifestyle-based
Consistent
Honest
Satisfaction depends on:
Personal identity
Marital status
Financial resources
Involuntary vs. Voluntary transition
Contact with others
Having a good plan and implementing it