A 20-Step Business Exit Planning Process

In the last issue (#46), we discussed The Overall Goals of Planning Your Exit. In this issue we detail A 20-Step Business Exit Planning Process.

"Have a bias toward action -- let's see something happen now. You can break that big plan into small steps and take the first step right away." Richard Thalheimer

A 20-Step Business Exit Planning Process

The exit planning process may seem overwhelming, yet the initial work can be accomplished in about three months of part-time participation without disrupting your business. It requires some effort, but your time investment will be more productive and beneficial than your normal day-to-day activities. Dollars expended in working with qualified professional advisors will provide a significant return on investment.

Following are 20 steps to developing a business exit plan. To some extent, they are in sequential order, but as long as the steps are achieved, the sequence can be flexible.

1) Obtain a baseline business valuation.

  • You need to know where you are to determine where you are going.
  • A qualified business broker’s no-charge, no-obligation opinion of value will suffice preliminarily.

2) Assess the value of your other assets and income.

  • These may include spousal income, Social Security income, other retirement income and plans, IRAs, annuities, other types of investment securities and savings, real estate holdings, life insurance cash values, etc.

3) Develop a personal financial statement.

  • Utilize information gathered in steps #1 and #2.

4) Consider your desired exit options

  • Determine the appropriate type of buyer (i.e., sale to children, employees or third parties).
  • Your exit option choice may affect the baseline business valuation.

5) Consider the tax implications of your exit.

  • Identify tax minimization opportunities.

6) Consider your preliminary personal goals if you exit your business.

  • What do you want to do if you sell your business?
  • But remain flexible.

7) Consider your ideal timing for exiting your business.

  • Again, remain flexible.

8) Estimate your financial requirements after leaving the business.

  • Utilize information gathered in steps #6 and #7 above,
  • A personal financial planner can help with this step.

9) Assemble and communicate your goals to advisors.

  • Depending on your individual situation, you may find yourself talking with your CPA/accountant, an income tax specialist, your attorney, a personal financial planner, an estate planner, an investment advisor/manager, a professional business appraiser, a real estate appraiser, an insurance professional, an employee benefit specialist, a business/management consultant, a business broker and/or merger and acquisition (M&A) intermediary, or a dedicated exit planner.

10) Select a qualified "quarterback" from among your advisors.

  • The “quarterback” will coordinate the efforts of all involved and document the results of the exit planning effort.

11) Consider advisors' input and accumulated information and adjust goals accordingly.

  • Your goals need to be realistic; therefore, after factoring in all data, you may have to modify the goals set early in the process.

12) Develop a contingency plan.

  • Have a transition plan for the business if something unexpected, such as death or disability, happens to you.

13) Develop an estate plan.

  • Utilize a qualified advisor.

14) Identify obstacles to selling your business.

15) Perform a SWOT analysis of the business.

  • Identify the strengths, weaknesses, opportunities and threats of the business.

16) Identify opportunities to increase the value of the business.

17) Learn the details of the process of selling your business.

  • Education is critical.
  • This newsletter series is a great place to start.
  • Talk with business brokers, M&A intermediaries and other advisors.

18) Develop preliminary plans for wealth preservation.

  • Determine where to invest the proceeds of the sale of your business.

19) Document in writing all exit planning information developed.

  • Your “quarterback” should formalize your exit plan.
  • Consider reviewing and updating your exit plan annually.

20) Implement identified business improvement opportunities.

  • Implement plans to overcome obstacles identified in #14 above.
  • Implement opportunities identified in #16 above.

It is never too early to start the exit planning process

Many advisors suggest …..