6 Steps Toward Successful Business Exit Planning:
1. Know Your Team
2. Value Your Business
3. Know Your Gaps
4. Build a Financial Plan
5. Create a Disciplined Risk Management Process
6. Know Your Options
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The ultimate goal of business exit planning is not solely about the actual exit. It’s about creating a significant company. Exit planning, simply put, is a comprehensive strategy that enables business owners to leave their businesses at a time when they are ready, for an amount of money that suits them, in the hands of a person or group they prefer.
It’s not, however, so simple.
It’s an entire process, as described by the Exit Planning Institute, that can take three to five years.
Think of the actual exit (be it by sale, transfer, liquidation, etc) as the crest of an enormous mountain – you can’t experience the exhilaration of the summit if you haven’t mastered both the climb and the descent. Just like you would train for the climb, the work you put into an exit beforehand will make the difference between success and failure.
A successful exit plan incorporates the needs of the business, the financial needs of the owners, and the personal readiness of the owner. Think of it as a three-legged stool. If the legs are not of equal length, it will wobble. A plan that doesn’t address all three of these needs will fail.
This applies to owners at all stages – from those just cutting the ribbon at the front door to those already seated at the negotiation table.
The Three Legs of Any Business Exit Planning Stool
- Business Planning
What needs to happen now in order to better prepare yourself later? Are you satisfied with the current performance and value of your business? Have you evaluated risks in your business? - Financial Planning
The entire exit process is driven by a wealth goal. What is the financial impact on your life once you exit the business? How much do you need to meet your goals? Your exit plan should be integrated into your financial plan. - Personal Planning
What’s next for you? Even if you exit at age 60 or 70, you may still have 20 to 30 years left to live. Do you plan to start a new business? Retire? It’s important to have a vision for what you plan to do with that time. Mapping out your personal purpose will not only help you build a successful, growing business but will also ensure a more fulfilling life after exit. It’s important to prepare yourself emotionally.
Ask yourself: “Am I ready to make an exit?”
If not, you’re not alone.
The Problem: Business Owners Aren’t Prepared for an Exit
Ninety-five percent of owners agree that “having a transition strategy is important to their personal future as well as the future of their business” as reported by the 2022 State of Owner Readiness Report – a research study that measures business attractiveness and owner readiness on a local, regional, and national scale to better serve transitioning business owners.
- 48% indicated they have no written personal financial plan
- 68% are unfamiliar with their exit options
- 78% indicated they do not have an exit focused team of advisors
- 68% indicated they have spent minimal time and attention on their exit
- 65% indicated they have no formal or written transition plans
- 70% do not have a document contingency plan in place addressing a forced transition caused by death, divorce, or disability
The Solution: Business Exit Planning Steps
Ideally the exit planning process should take at least three to five years and involve a team of professionals supporting the business owner in order to help you get the value and infrastructure of your company to a place you’d like it to be.
- Value your Business
Knowing the true value of your business is critical to proper business planning and achievement of personal goals. - Know your Gaps
There are three numbers every business owner should understand and be able to manage in order to meet their goals:
– Their Profit Gap
– Their Value Gap
– Their Wealth Gap - Build a Financial Plan
The most important element in and exiting a company is the alignment of the three legs referenced above: the owner’s business, the owner’s personal goals and the owner’s financial goals. A financial plan can help you better understand your personal and financial goals. Read more from our team on constructing your financial plan. - Create a Disciplined Risk Management Process
Risk is inherent in businesses. Effective risk mitigation and minimization is imperative in the Exit Planning Process. We’ll be covering more on risk management in our upcoming webinar April 26. - Know your Options
Your business is unique. You built it, operated it and grew it in ways that worked best for you. Your exit should be no different. There are options when it comes time to exit. The one you choose will depend on your financial, personal, and business goals. Your team will work with you to examine the options and help to determine which one makes the most sense for you, your family and your business. - Know your Team
Entrepreneurship can be a lonely journey. Research tells us this and so do our business owners. The process of exiting a business warrants recruiting an entire team – a full field of professionals ready to help you uncomplicate the whole process. Your personal team should include a wealth advisor, tax advisor, private banker, and estate attorney. Your business team may also need to include an M&A attorney, valuation expert, commercial banker, investment banker and risk advisor. Our client advisors can help you recruit the professionals who will facilitate every step of the exit planning journey.
Bottom line? You don’t have to climb the mountain on your own. Oakworth’s Core Purpose is ”Helping People Succeed.” Our experienced client advisors are ready to join you on this journey.
Note: This article is part of a special content series on Business Exit Planning. Also check out:
- You Need to Know Your “Wealth Gap” Before You Sell the Business
- Who Should Be On Your Business Exit Advisory Team?
- 8 Business Exit Strategies – Pros & Cons
We are here to help, and we hope you’ll check out our webinar on demand around the importance of a buy-sell, below.
This document is being provided for informational and educational purposes and is not meant to be taken as specific advice. Oakworth Capital Bank does not provide tax or legal advice. All decisions regarding the tax and/or legal implications of these strategies should be discussed with your tax and/or legal advisors before being implemented.