Exit Planning: Are You Really Ready to Make an Exit?
Benjamin Franklin once said “if you fail to plan, you plan to fail.” This saying holds true when talking about exiting your business.
Although most business owners know they will someday sell their business, very few have a plan in place to do so. While it is commonplace to simply assume you will someday sell your business, cash the check and move off into the sunset, the reality is business owners who fail to plan their exit do not receive the same economic value (if any) for their business as those who do. So the question you should be asking yourself is not “when should I exit my business?”, but rather “how soon should I start planning my exit?”
When is the Right Time to Start Preparing My Exit Plan?
In life and business, timing is everything, and when it comes to preparing your business for your eventual exit there is no time like the present. Exiting your business is more of a process than most people believe, and being prepared now will pay dividends in the long run. Developing your exit plan will give you additional insight into your business you may not have considered, and help you define and reach your goals on your own schedule.
Simply put, exit planning is a journey. As with any journey, there are key areas to consider:
- What are my dreams?
- What is my reality?
- What will it take to make my dreams a reality?
What Are My Dreams?
Knowing what the end goal is makes it easier to work backward and be assured you are taking steps in the right direction. Only you know what life after running your business should look like, but there are some questions you can use to help get you started:
- What will I do after I retire?
- How much will I need to save up by the time I retire?
- What type of lifestyle do I want to live?
- Who will I still be responsible for (e.g. family members…)?
- What assets will I retain/sell?
Once you have established what your dreams are, the next question to ask is what is my business’ reality?
What is My Reality?
Taking a moment and reflecting on the progress (or lack thereof) your business has made to date is an important part of the exit planning process. Knowing where you currently stand will give you a starting point to go from, and help you determine what it will take to reach your goals. Some questions to ask yourself in this phase are:
- Have I accomplished all I wanted with this business?
- Who is dependent on my business?
- Could my business operate without me?
- How much money have I saved up in total?
- What sources of income do I have?
Next, it is time to determine what will it take to make your dreams a reality.
What Will It Take to Make My Dreams a Reality?
This is where the complexity of exit planning gets started. Once you have determined your starting and ending points, it is time to put a plan in place to connect the dots. An efficient exit plan should address at least some of the key questions in each phase of the process.
- What do I need?
- What do others need?
- What do I already have?
- What happens when I retire?
- What investments do I have?
- What is my investment history?
- What investments will I make?
- How do I feel about risk?
- How much help do I need?
- What do I own?
- What do I share ownership of?
- What happens if I die prior to retirement?
- What is the value of my business now?
- What is the projected value of my business?
- How can I increase the company’s value?
- How can I set up the company for future success?
- What taxes do I owe?
- What taxes result from selling my business?
- What happens if I am not around to pay my taxes?
- What happens when I’ve done my taxes wrong?
- What taxes will I need to pay after I exit my business?
Getting the Answers
Answering the questions needed to make your dreams a reality likely can not be done without the help of a team of experts. Consider adding a sell-side advisor, financial planner, lawyer and accountant to your exit planning lineup. Begin gathering these key members to your team three to five years before you plan to depart the business, if not sooner.
Working with a well-equipped team of professionals will allow you to:
- Unlock additional value in your business
- Avoid missteps
- Be protected from the unknown
- Have a complex process streamlined
- Remain focused on operating your business
Each advisor on your team will bring a unique technical proficiency to the table, yet will coordinate their efforts to assure you have a workable plan. The roles of each major player in the exit planning process are highlighted below:
Exit planner/sell-side advisor – You can rely on a sell-side advisor, like those at Doeren Mayhew Capital Advisors, to help devise a plan to drive value in your business before your exit, assist in finding a buyer and coordinate efforts of the entire exit planning team, among many other things.
Financial / estate planner – A financial planner will help you better understand how to plan for retirement, manage your investments, set-up your finances to achieve your financial goals, and how to invest the proceeds from the sale of your business.
Accountant – Your accountant will focus on a different aspect of your finances that will start long before you exit – your bottom line. A CPA, like those at Doeren Mayhew, will help set your business up to maximize tax savings now and align the structure of your business for favorable tax liability upon your eventual exit. Additionally, an accountant can help bring to light tax ramifications that will arise from other activities in the exit planning process, such as your business purchase and sales price allocations, partial business transitions, risk-management techniques and the sell-side due diligence that will prepare you for your exit.
Lawyer – No business exit can take place without the help of a lawyer. They can assess your current buy/sell agreements, help create the legal documentation needed to sell your business, protect your assets in the future and carry-out any of your wishes upon your unexpected departure.
Assembling the Team
Exit planning is a complex process with many moving parts, and it is important to select experts who are willing and able to work well as a team to help provide solutions to the critical questions to exit your business successfully.
Want to understand how your dreams can become a reality? Rely on the sell-side advisors at Doeren Mayhew Capital Advisors to assemble the right team and devise a plan to make it happen. Contact our investment bankers today.