Exit planning is the process of preparing a business for the eventual sale or transfer of ownership. It ensures that the business owner can achieve their personal and financial goals when exiting the business.

In an interview with Exitplanner, Elliot Sinukoff, President at Lifecorp Financial Partners and award-winning exit planning professional, explained why a business owner should consider exit planning, what exit planning is, what the role of the exit planning professional is, and why a business owner should consider involving an exit planning professional like Elliot.

Start early to provide time for fixing issues

Elliot recommends that a business owner should start exit planning at least five years prior to their desired exit, because the exit planning process is complicated:‍

“There are certain things that can reduce the value of the business, like owner-centricity or customer concentration. These things can be fixed or improved, but it takes quite some time to do it.”‍

Elliot especially emphasizes how owner-centricity can be an issue in owner-led businesses:‍

“Nobody wants to buy your 60-hours-a-week job and if the business can't run without you, then it has less value, and the new owners are going to want you to stick around for a couple of years and earn your way out."

‍More generally, the business owner needs to prioritize initiatives and increase the value of the business, and that might require developing the skills and talents of potential successors, employees or family members, and preparing for potential tax implications

‍“Exit planning is about creating options, and the sooner you start, the more options you create for yourself.”‍

Avoid seller's remorse with good exit planning

Elliot's approach to advising clients is to gather information about their personal situation and their business. He wants to help them establish goals like when they want to exit and what the terms of exiting might be. He also wants to identify possible buyers or successors and develop a plan for transferring the ownership. Elliot believes that business valuation is essential to the financial plan, because it helps set realistic price expectations. He also believes that it is essential to assess the business owner's personal readiness and help them have a plan for life after the business.

‍“In a survey done by one of the accounting firms here in Canada, they concluded that 75% of business owners that sold, regretted doing so within the first year. I think the main reason is they just don't have a plan for what life after business looks like.”‍

Elliot stresses the importance of reviewing the business owner's financial readiness and calculating a wealth gap that they need to close. He helps them prepare a continuity plan and reviews risk management in the business to protect what they currently have. Finally, he looks at business readiness and attractiveness and calculates what he calls the value gap, which compares what the business is currently worth to what a best-in-class business would sell for or be worth.

An exit plan's effect on the business valuation and sales price

Careful exit planning can have a great effect on the sales price of a business, and Elliot has helped some businesses improve their value significantly:‍

“I've seen cases where we've been able to increase the value of the business by as much as 40%. But it really depends on how the business is currently being run and what is needed to be done to move it to best-in-class.”

“So I'd say anywhere from 20% to 40% would be realistic.”‍

So, why should a business owner consider exit planning? Elliot believes that exit planning ensures that the business owner can achieve their personal and financial goals when exiting the business. It helps them create options for themselves, and the sooner they start exit planning, the more options they create.

Exit planning also allows business owners to prioritize initiatives and increase the value of their businesses, which ultimately increases the sales price. Additionally, having a plan for life after business and being financially and personally ready for the next stage in life is essential for a smooth transition.

The urgency of exit planning highlighted by a new survey and aging baby boomers

Elliot’s best advice for business owners is to ensure that their business is attractive and appealing to buyers, especially in a market where owner demographics will change a lot over the coming years:‍

“The Canadian Independent Federation of Business did a study and they concluded that 76% of business owners interviewed were looking to exit in the next 10 years.”

“The oldest baby boomers are in their mid-seventies, and from what I understand, they're starting to flood the market with businesses.”‍

With more sellers than buyers, the buyers will dictate the terms, and businesses that are not appealing or attractive will find it very difficult to sell. Elliot's insight highlights the need for business owners to have a solid exit plan in place rather than simply hoping for the best.‍

“There's going to be a buyer's market … so just hoping for the best is not really a good plan for an aging business owner.”‍

In conclusion, exit planning is an essential process for business owners who want to achieve their personal and financial goals when exiting the business. An exit planning professional like Elliot can help business owners create options, prioritize initiatives, and increase the value of their businesses, ultimately increasing the sales price. With proper exit planning, business owners can smoothly transition to the next stage of their lives with a plan for life after business and financial and personal readiness.