Why Exit Planning?
Exit Planning is a proven process that can maximize the financial return, minimize tax liability, plan for contingencies and increase the likelihood of a successful transfer of a business.
Every business owner is faced with the absolute certainty of leaving his or her business – voluntarily or otherwise – at some point in time. It's a once-in-a-lifetime event for most business owners, and the process of leaving a business is not something the average business owner knows much about. Without a plan, the process can appear daunting. As a result, most owners wait until it is too late to undertake it.
The Seven Step Exit Planning Process
For an owner considering leaving his or her business, the Business Exit Strategies Seven Step Exit Planning Process is a deliberate, adaptable, and customized approach to designing and implementing a business owner's successful exit from his or her business.
The process considers the business owner's unique Owner Objectives to convert his or her current reality into the desired outcome, and relies upon the input from the owner's team of professional advisors. That team may consist of the owner's accountant, lawyer, financial planner, insurance advisor, transaction intermediary, business valuator, and management consultant, depending on the size of the business and complexity of the plan.
While specialized in their own practice area, few business advisors are aware of all that can be done to assist their business owner clients as they begin to plan for their exit from their business. A Business Exit Strategies Certified Exit Planner coordinates the efforts of the advisor team specialists, and has an understanding of how financial planning, business valuation, compensation planning, corporate finance and restructuring, tax, insurance, management development, and business brokerage will contribute to the process.
A complete plan rests on the BES Seven Step Exit Planning Process:
Step 1 – Establish Owner Objectives
Identification of the unique, personal objectives of each business owner is what drives the creation of his or her Exit Plan. Step One articulates and tests Owner Objectives so that a comprehensive plan focuses on achieving those goals. The primary Owner Objectives consider: When do I want to leave my business? How much money do I need and want to live a comfortable post-business life? To whom do I want to sell?
Step 2 – Quantify Financial Resources
Step Two determines the financial resources – both personal and business – available to the owner. The current value and projected cash flow of the business, as well as non-business assets and income, are used to determine which paths and planning tools will be available for the owner to reach his or her objectives.
Step 3 – Maximize and Protect Business Value
The elements that build the value of a business or protect the value the owner has worked so hard to create are called Value Drivers. Step Three identifies and prioritizes the Value Drivers that offer the greatest impact in meeting the owner's overall exit objectives.
Step 4 – Ownership Transfers to Third Parties
During Step Four, owners who want to sell their business to a third party work with their advisors to identify ways to do so in the manner that results in the most beneficial sale price and terms. Business owners who don't sell to a third party either retain their ownership long-term or sell to an insider.
Step 5 – Ownership Transfers to Insiders
Step Five includes a detailed plan to transfer the business to insiders (partners, children, or key employees). Step Five is essential to allow the owner to receive the value from the business, while minimizing the risk of using the resources of the business if, as is usually the case, the purchaser has insufficient personal capital.
Step 6 – Business Continuity
Step Six prepares the owner for the contingencies that affect the business and its owners. A complete exit strategy considers potential changes, such as the death or permanent disability of an owner or partner or buyer so that the owner's objectives can still be achieved if the circumstances change.
Step 7 – Personal Wealth and Estate Planning
The sale of a business generates cash – for owners and, potentially, the government. During Step Seven, owners and their advisors create a plan that not only preserves wealth, but minimizes taxes using lifetime and estate planning tools.
Moving Forward
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