Why It is Crucial to PLAN your Exit

Every entrepreneur is told that they should create an exit plan at the same time they create their business plan.  However, most people think that an exit plan only encompasses when and to whom they want to transfer their business and don’t actually go through the planning process.  As skilled and as successful as most business owners are, they cannot, working alone, create and execute their exit plans. Even your attorney, CPA or financial and insurance representative, individually, is usually unable to craft a successful exit plan. Successful exit planning is a multi-disciplinary effort that requires you and your advisors working together.  For your exit plan to succeed, you need your legal, financial, tax, and investment banker input.  In addition, having an exit planning professional on your team should help you lower the costs incurred by these professionals and assist in keeping your exit plan on the right track. 

Whether your endpoint is a sale to a third party, a transfer to family member, an orderly liquidation, or something in between, each outcome will have a separate set of actions needed.  For instance, if you are selling to a third-party, your end objective should be to maximize value.  Alternatively, if you wish to transfer to family, you would want to minimize the transfer value. 
You will also have to address as part of this planning process, what would happen to the business and to your family in the event your death or disability preceded your planned exit.

Below are the most common objectives of a thorough exit plan:

• Minimize taxes now and/or following the transfer of the business
• Minimize estate taxes when you transfer your wealth/business to family
• Determine how to meet your retirement goals
• Prevent business value from crashing upon your death or disability
• Communicate your goals and expectations with your family and keep them on the same page, supportive, and cohesive
• Build value within the company to maximize eventual sale price and terms
• Improve chances of sale because of certain features implemented
• Understanding the value of your business
• Determine who would be the best type of buyer (family, third party, employees, management, partner, etc.)

Once you have finished your comprehensive exit plan, it is important to implement it otherwise that plan is only an expensive piece of paper.  Save your money on getting a plan done if you have no intention of implementing it.  Just like your business plan, your exit plan will probably change along the way and it is important to adjust it accordingly.  However, that isn’t an excuse to avoid the planning process.  Remember, now may be a good time because you may have more time on your hands and might be able to negotiate for some leniency on rates from professionals.

In fact, we are so confident that exit plans are worth their value that we will be your exit planning professional at no charge if you sell your company with us at a later time.  If you are interested in learning more, feel free to call us at (650)51-ORION or reply to this email.