“Exit Planning” can be a scary, sometimes intimidating phrase for a lot of business owners. When we discuss this topic with potential business owner clients immediately their guard goes up. “But I don’t want to sell my business now”, “But I never see my business operating without my involvement”, “But I want to transfer my business to my children”, these are all phrases we hear when we try to discuss the topic of exit planning. Proper exit planning can address all those concerns. I think the phrase exit planning was coined because at some point in time ALL business owners will exit their business, it just comes down to how. Essentially, exit planning is just good business planning.
Our job, as wealth managers, is to make sure your financial objectives have a high likelihood of being achieved no matter how your exit occurs. We accomplish this in three simple steps:
1. Define your objectives
2. Identify your resources
3. Take action and review
Defining objectives is sometimes the most difficult part of the process. After years of running a successful business sometimes owners lose sight of their Why, prioritizing the success or survival of their business at the expense of their personal financial wellbeing. The first step we take in the exit planning process is to get to know the owner and the family, the relationships they have to the business, and uncover what the big picture goals are. Is the plan to transition ownership to the children? Is the plan to sell to the highest bidder? Is the plan to still own the company but just step away from operational responsibilities? Or is the plan something totally different? Without this step it would be impossible for us or any member of your exit planning team to provide sound advice.
The next step of the process is to identify the resources available to reach your financial objectives. When most of a business owner’s net worth is tied to the value of the business that can cause issues down the road if not properly addressed. Even for owners who never, ever, ever foresee a planned liquidation event in their future taking the steps to ensure business continuity becomes that much more important. For example, if an owner was receiving income from the business in the form of a salary and dividends, but became injured and unable to work, would those distributions be sustainable? If so, are the key employees filling in operational roles incentivized to make sure that continues? This is one of the many of scenarios we bring up with owners who say they never plan to sell their business. We stress that exit planning consists of more than just executing the sale and includes the unplanned and even temporary exits.
Our last step of the process is where we lay out the action plan that owners should take to progress towards their financial objectives. At this stage we often coordinate with outside professionals to implement the right strategies for the client. For example, if a sale to a third party is worth assessing it might make sense to retain an investment banker to facilitate the sale, an accountant to assess the tax ramifications, and an estate planning attorney to review your documents both pre- and post-sale. Once we have the action plan in place and begin implementation, we periodically meet with the client to make sure that the process is moving in the right direction.
As I said in the beginning of the article exit planning is business planning. Addressing both planned and un-planned exits can be a stressful process and it’s easy to push it off into the next month, or quarter, or year. We strongly advise against this procrastination. Shifting demographics and a post-COVID world have many owners rethinking the relationship they have with their business. If you’re an owner and you’d like to see where you stand in relation to your goals, please click the link below to set up a complimentary initial consultation.
Together, we can work to keep you on-track towards your financial goals.
Request a consultation with me to learn more.
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