The Exit Planning Process
Business owners need to ask themselves: “After all of the effort I’ve put into building my business, what will I ultimately be looking to get out of it?” Once this question is answered, factors like retirement age, family considerations and specific financial goals begin to take shape.
There are many tools to help individuals get into business, but few to help them get out. The exit planning process is a customized, comprehensive approach to designing a business owner’s successful exit from the business and incorporating unique personal objectives into realizing his/her desired outcome. Without an exit plan or strategy, the likelihood of maximizing financial return, minimizing tax liability, preparing for contingencies and realizing a successful transition from the business are greatly diminished. To mitigate the risk of a negative outcome, owners need to allocate more of their time in developing a comprehensive business exit plan that takes into account retirement goals and objectives.
To begin the exit process, owners should contemplate
these key issues:
- Business valuations;
- Buy/Sell agreements;
- Grooming successors;
- Identify retirement income needs/goals;
- Golden handcuffs for key employees;
- Initiating stock programs to key executives;
- Implementing business growth strategies and
- Delegating owner responsibilities to
management and employees;
- Preparing audited financials for the business for
- Getting pre-qualified for financing;
- Writing a comprehensive summary of the business;
- Consulting advisors on how to structure the deal and
potential tax exposure;
- Structuring buyouts from successor or partners;
- Identifying the potential universe of buyers.
When is the right time to begin planning?
Business owners are busy running day-to-day operations and for many, their identity is so closely tied to their business that it’s difficult to imagine leaving. For those reasons, many haven’t prepared for, or even contemplated, their exit. But not planning for their inevitable exit comes with many risks.
To preserve your options and equity, remember that time is of the essence. Don’t wait until you’re ready to leave to start exit planning. No matter how long you’ve been running your business, the evidence is clear that owners should start the process earlier to map out their exit.
Engaging in the exit planning process early on, potentially 5 to 10 years before you are ready to exit, can help you to see your options, identify and resolve problems, get your business in order and ultimately maximize its value.
Securities and Investment Advisory Services offered through Securian Financial Services, Inc. Member FINRA. Tax & Financial Group is independently owned and operated. Separate from the financial plan and our role as financial planner, we may recommend the purchase of specific investment or insurance products or accounts. These product recommendations are not part of the financial plan and you are under no obligation to follow them. Financial advisors do not provide specific tax/legal advice and this information should not be considered as such. You should always consult your tax/legal advisor regarding your own specific tax/legal situation. 5487519 DOFU 03/2023