Are you a business owner looking to retire soon? According to the Exit Planning Institute, “75% of business owners would like to exit their business within the next 10 years”(8). Thankfully, the number of owners prepared to exit has increased dramatically and today only 9% of business owners don’t have an exit plan.
If you are an owner without an Exit Plan, you may wonder why you need one. An Exit Plan is a strategic plan to build value in your business which you plan to unlock at exit and use for personal and financial goals. The Exit Planning Institute defines a key framework called the Three Legs of the Stool™. The three legs are Business, Personal and Financial. Goals in each area should align because they are integral to each other. Here’s how you can align those goals.
Most business owners focus on working in, and on, their business. Surprisingly, the key to successful Exit Planning begins with answering questions about personal goals. Knowing who you are outside of your business and understanding your personal goals is where to start the Exit Planning journey. Your Financial Advisor can help you identify your core values and define, or refine, your personal purpose. In our practice, we work to align our client’s Values, Goals, and Risk Tolerance to help clients feel confident and comfortable with their finances.
The second step is to look at Financial goals. The financial planning process integrates the 7 key areas of financial planning. Those areas include:
• Cash Flow & Net Worth
• Cash Reserves
• Mitigating Risks
• Taking advantage of, or implementing workbenefits
• Minimizing taxes now and in the future
• Quantifying financial independence
• Buttoning up estate concerns
By combining the 7 key areas of financial planning with core values and personal goals, we make sure clients have a complete plan reflective of who they are. In Exit Planning, identifying a Wealth Goal, or quantifying what financial independence is, is the Financial element of your Exit Plan. The gap between a client’s Wealth Goal and current net worth is usually filled by the value of the business. In 2023, 70% of business owners said they would need to unlock the value in their business to continue their lifestyle. (41) Quantifying the business value a client needs for their Financial goals helps identify how much work the business needs for a successful exit.
The Business pillar, or “leg”, is the strategic work on the business that helps bring together the owner’s personal and financial goals. Creating a formal exit planning team is a good first step. An exit planning team will include the financial advisor, a CPA, an attorney and a value growth consultant. Business owners should have written goals and an action plan to achieve them. They should also have a market attractiveness assessment, a business risk assessment, and a business valuation. The advisory team can help business owners understand their Profit Gap and Value Gap. As the Exit Planning Institute says, “The Path to a higher valuation starts with knowing where you are today”(61). Understanding how to increase the value of the business and starting to act with a written plan helps owners unlock the value they need, enabling them to pursue their Personal and Financial goals.
What are your next three steps as a business owner? First, start to understand what your next phase in life will be – what are your personal goals and what is your purpose? What will you do with your time when you are no longer in your business? Second, collaborate with a financial advisor to identify your values, goals, and risk tolerance and create or update your personal financial plan. Third, identify your business consulting team to conduct a readiness assessment and valuation and determine an action plan to address profit gaps and value gaps.
Exit Planning Institute. 2023 National State of Owner Readiness. https://exit-planning-institute.org/2023-national-state-of-owner-readiness(
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