Exit planning is the process of creating a strategy for the eventual transfer or sale of a business. It involves considering and implementing a range of decisions, actions and initiatives that enable the owner or owners of the business to leave it in a planned and organized manner, while achieving their personal and financial goals.
The goal of exit planning is to ensure that the business owner or owners can exit the business on their own terms, with a clear plan in place for the future of the business, its employees, and its stakeholders.
It is important to start planning for an exit well in advance of a potential sale, to allow sufficient time to prepare the business for a smooth transition and maximize its value.
Why do I need an exit plan?
Even if you're not planning to sell or transfer your business in the near future, there are several benefits to having an exit plan:
A roadmap for the future: An exit plan helps you create a roadmap for the future of your business, and to identify the steps you need to take to achieve your personal and financial goals.
Maximized value of your business: By planning your exit strategy in advance, you can take steps to increase the value of your business and make it more attractive to potential buyers or successors.
Reduced risk: An exit plan helps to reduce the risk of unexpected events that could derail your plans, such as illness, disability, or sudden changes in the market or economy.
A smooth transition: A well-planned exit strategy ensures a smooth transition for your business, employees, and stakeholders, minimizing disruption and maintaining continuity.
Peace of mind: Knowing that you have a clear plan in place for the future of your business can provide peace of mind and reduce stress and anxiety.
To summarize, having an exit plan can help you achieve your personal and financial goals while minimizing risk and ensuring a smooth transition.
When should I start exit planning?
The earlier you start planning, the more time you have to prepare your business for a successful transfer or sale, and the more options you have available to you.
Ideally, you should start planning your exit at least 3-5 years before you plan to retire or transfer ownership. This gives you time to make any necessary changes to your business operations, increase its value, and address any legal or tax issues.
Consider unexpected events: It is important to have an exit plan in place in case of unexpected events, such as illness or disability. Having a plan in place can help ensure a smooth transition for your business and your stakeholders in cases like these.
Involve your key advisors early. Creating an effective exit plan requires input from a range of advisors, including lawyers, accountants, financial planners, and business brokers. By involving these advisors early on, you can benefit from their expertise and ensure that all aspects of your plan are well thought out and executed.
What does an exit plan include?
There is no one-size-fits-all exit plan that will work in all situation. Even so, here are six areas that you should focus on when making the exit plan:
- Define your goals: The first step in exit planning is to define your personal and financial goals for the business. This may involve considering factors such as your desired timeline, financial needs, and the type of legacy you want to leave behind.
- Assess your business value: You'll need to determine the current value of your business, including its assets, liabilities, and potential for future growth. This may involve working with a business valuation expert.
- Develop a succession plan: If you plan to pass your business on to a family member or key employee, you'll need to develop a succession plan that outlines the steps you'll take to transfer ownership and ensure a smooth transition.
- Identify potential buyers: If you plan to sell your business, you'll need to identify potential buyers and evaluate their suitability. This may involve working with a business broker or investment banker.
- Address tax and legal issues: Exit planning also involves addressing tax and legal issues related to the transfer or sale of your business, such as estate planning, tax liabilities, and compliance with local and federal regulations.
- Implement your plan: Once you have a clear plan in place, you'll need to implement it effectively. This may involve making changes to your business operations, communicating with stakeholders, and working with advisors to ensure a successful exit.
Who is involved in exit planning?
Depending on the specific circumstances of your business and your exit goals, exit planning involves a range of advisors and stakeholders. Here are some of the key people who may be involved in the exit planning process:
- Business owner: As the business owner, you will be at the center of the exit planning process, working with advisors to define your goals and develop a plan to achieve them.
- Exit Planning Advisors: Some advisors specialize in exit planning and have been certified by organizations such as Exit Planning Institute (EPI). These advisors can help guide you through all steps of the planning process.
- Financial advisors: Financial advisors such as accountants, financial planners, and investment bankers can help you assess the value of your business, identify potential buyers or successors, and develop a plan to maximize your financial returns.
- Legal advisors: Legal advisors such as attorneys and estate planners can help you address legal issues related to the transfer or sale of your business, such as tax liabilities, contracts, and compliance with local and federal regulations.
- Business brokers: Business brokers can help you identify potential buyers for your business and negotiate the terms of a sale.
- Family members: If you plan to pass your business on to family members, they may be involved in the exit planning process, helping to define your goals and develop a succession plan.
- Key employees: If you plan to transfer ownership to key employees, they may be involved in the exit planning process, working with you to develop a plan that meets their needs and ensures a smooth transition.
As a business owner, you might ask yourself if you need to spend money on an advisor or not. Of course, this depends on your situation, but the experience, training, expertise and network of a professional advisor will often help you both save time and provide valuable and objective insights that can help you increase the value of your business
Exit planning with Exitplanner
Exitplanner creates a tailor-made exit and growth plan that fits within your desired timeframe. The platform includes more than 150 questions that lead to a comprehensive gap analysis and helps you understand your personal goals.
If you’re a business owner considering exiting your business, then sign up for a free account on Exitplanner or contact us and get connected to an Exit Coach through our network.