Are You Uncertain About The Value Of An Exit Plan?
Fewer than 30% of private business owners have an actionable Exit Plan. Those that do often only have one element of a comprehensive Exit Plan such as an “estate plan” or a “management succession plan.” Properly prepared and implemented, a customized Exit Plan becomes the “Playbook” that makes the rest of a business owner’s life make sense. It addresses an owner’s personal, business, financial, legacy, charitable, community and retirement goals.
A wise man once told me your chances for getting what you want in life are substantially increased by the quality of the questions you ask yourself. To that end, I have prepared a list of questions, the answers to which will hopefully help you understand the important and powerful value of a customized Exit Plan.
1. Is it important for you to be able to control the exit from your business? (When, to whom and on what terms?)
2. Is it important for you to know whether selling your company to a family member or management will enable you to live the retirement you want? (Doing so may not support your retirement goals and subject you to ongoing financial risks.)
3. Is it important for you to know your company’s realistic value today? (Many business owners have inflated views of their business’ value. In reality, the value of your business may not be sufficient to support your retirement goals.)
4. Is it important for you to know how a professional buyer would view your company’s value drivers and weaknesses? (Given enough time, value improvement steps can be implemented to dress-up your company for sale.)
5. Is it important for you to understand how much after-tax proceeds you will need from the sale of your company to support your retirement plans? (A wealth manager with strong retirement modeling skills can calculate what your company’s value will need to be to support your retirement spending goals. An exit plan will help you identify value improvement steps to increase your business’ value.)
6. Is it important for you to minimize transaction taxes when you exit your business? (Transaction taxes can take a significant bite out of your proceeds at time of sale. Given enough time, strategies can be implemented to reduce or defer the transaction tax burden.)
7. Is it important for you to minimize estate taxes? (An up-to-date estate plan can minimize estate taxes and reduce the pain of your family having to sell your business, typically at a lower value, to pay estate taxes.)
8. Is it important for you to understand how you should invest your business sale proceeds in order to meet your financial goals and leave a legacy? (Business owners are often shocked to learn how little they can draw-down on their invested assets to support their annual retirement spending. A wealth manager can recommend various investment strategies to meet your retirement spending and legacy goals.)
9. Is it important for you to have a contingency plan in place for your company in the event of sudden death or disability? (Without a plan for continuity of leadership, business continuity is seriously threatened.)
10. Is it important for you to preserve family wealth for future generations? (Without a customized exit plan, chances are your legacy goals will not be met.)
11. Have you started developing a plan for your life after the transition from your business? (This is a very important, but usually overlooked, aspect of the exit planning process. Having well thought out plans in advance of your business sale or transition date is critical to happiness in retirement.)
12. Is it important for you to have clear, specific, written, goals? (Without them you may get caught up in the current of life and miss your targets.)
13. Is it important for you to have detailed, prioritized, action plans to accomplish the above? (Action plans should be prioritized and not in conflict with your goals.)
14. Would it be important for you to have someone assist you to ensure the action plan is implemented? (The many benefits of an Exit Plan will only be realized if they are implemented. Strongly consider hiring a coach to keep your feet to the fire.)
If you answered yes to the majority of these questions, you should make the preparation and implementation of an Exit Plan a priority. Typically, the more time you have to implement the Plan’s actions step prior to your intended exit date, the higher the monetary return you will receive on your investment in an Exit Plan. Having an Exit Plan in place will reduce your stress as well as family and employee uncertainty.
Bill Quish is a Certified Exit Planning Advisor and Investment Banker with Lyons Solutions, LLC. He can be reached at 860-653-1455 or at bquish@lyonssolutions.com.
Copyright 2008. All rights reserved.
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