The Seven Steps: When you turn to EXITS for help putting together your exit plan, we’ll talk with you about the seven steps of the process. We’ll team with your advisors to get their input, and create a strategy that benefits you, your employees, and your family.
- Step 1: Identify your Exit Objectives
- Step 2: Discover your Business and Personal Resources
- Step 3: Maximize and Protect Business Value
- Step 4: Design Ownership Transfer to Third Party
- Step 5: Design Ownership Transfer to Insiders
- Step 6: Coordinate Business Continuity
- Step 7: Personal Wealth and Estate Planning
Step 1: Identify your Exit Objectives
Making successful exits the standard, not the exception.
According to a 2005 PricewaterhouseCoopers’ survey of 364 CEOs of privately held, fast-growing companies, “nearly two-thirds… plan to move on within a decade or less: 42 percent within five years, and 23 percent in five to 10 years.”
It’s already been a decade since that survey — are you ready to move on from your business? In Step 1 of our EXITS process, you’ll discover when you want to leave, who you want to transfer the business to, and how much you want or need from the business when you make your exit.
Your advisors will need to have these objectives in mind as they work with you through the exit planning process. Make sure you communicate your wishes clearly: What does leaving your business mean to you in terms of time commitment, emotional involvement, financial guarantees, etc.
Deciding to do something now to create the best possible exit path is not difficult. The failure to act, however, can potentially be fatal to a successful exit. The success of your business exit is simply too important to you (and your family and your employees) to leave to chance. Why wait? Why decide not to decide?
Step 2: Discover your Business and Personal Resources
Before you make any plans for the future, you need to know what you have in the present, today.
You might have a “ballpark” figure in mind of your company’s value, based on what you’ve seen other businesses in your market sell for. An EXITS valuation expert can help dig in to the numbers, and determine the current value of your business.
The value isn’t just useful if you plan to sell your company; it is also used to set up incentive plans for your key employees, ensure your buy sell agreement is properly funded, protect your estate, and consider your risk management coverage. We’ll take a custom-made approach to determining the value of your business.
This is also the time for a financial needs analysis — a look at what you personally own (everything from an IRA to the cars in your garage). Find your “gap” — the amount between what you have and what you want to have after you exit your business. We can help you get there.
Step 3: Maximize and Protect Business Value
Discover what you’re really worth, and how you can make that value grow.
Exiting your business is a long process that involves a lot of work! Once you have figured out what you want in retirement, and discovered what you have right now, it’s time to work on closing the “gap” in a legally sound and financially beneficial method. And you need to do all of that while you’re still running your business — dealing with customers and clients, meeting with your employees, and staying on top of your industry’s latest trends.
You can begin increasing cash flow today by simply focusing on ways to operate your business more efficiently by increasing productivity and decreasing costs.
It is important, especially in the year or so preceding the sale of the business, that cash flow be substantial and on an upswing. Value drivers are what make your company… valuable. EXITS experts say there are several important value drivers for businesses, no matter what the industry.
You can install these value drivers and better position your company to secure a premium price upon your exit with the help of the EXITS team.
Key Value Drivers
- A stable and motivated management team.
- Operating systems that improve sustainability of cash flows.
- A solid, diversified customer base.
- A realistic corporate growth strategy.
- Effective financial controls.
- Stable and improving cash flow.
A correctly-designed exit plan yields the owner possible income, gift and estate tax savings. Finding those savings opportunities, however, is the work of more than one advisor… it takes an EXITS team.
Step 4: Design Ownership Transfer to Third Party
When the time comes to sell your business, you want to be well-prepared and have many potential buyers competing for the purchase of your business.
Planning an exit can be a huge distraction from operating your business. That’s why you turn to specialists like the EXITS team. It’s also a good reason to stay focused on your business, right up to the last day you’re in the company president’s chair. You don’t want to be ready for an exit, only to find the company’s performance has dropped in the last few months before the sale, all because you were thinking about the future, instead of the present.
Consider the possibility that you might just be the worst possible person to sell your company. Why? As the one most emotionally attached to your business, you will likely find it difficult (if not impossible) to negotiate with a prospective buyer in a detached, dispassionate and effective manner. Experienced transaction professionals anticipate and manage the inevitable lulls and storms that few owners have the stomach to endure.
Step 5: Design Ownership Transfer to Insiders
If you want to transfer your business to children, key employees or your current co-owners, you’re making a transfer to insiders.
When considering a transfer of your business to a close friend or loved one, don’t underestimate the value of using experienced consultants and advisors. Their counsel, experience and input are perhaps never more important than when dealing with your own family. The need for independent, non-emotionally charged advice can be critical. With decades of experience with other family owned businesses, these consultants along with your trusted advisors can offer practical advice.
EXITS will coordinate with your chosen successor to make sure all of your desires are met in the transfer (including, but not limited to, reducing risk and minimizing taxes). Transfers to insiders take time: time to plan and, most critically, time to implement. The good news is that in the typical case, the more time owners take to transfer the company, the less risk they incur and more money they receive from the new owners.
Step 6: Coordinate Business Continuity
The ideal exit plan gives you many years to build value and prepare to turn your business over to a successor, but circumstances can change.
EXITS will identify and set up tools that ensure the continuity of the business in any situation, including but not limited to: vesting key employees, key employee insurance, a buy sell agreement, and a payment plan for the business owner’s family.
One major part of planning for spur-of-the-moment business continuity changes is a buy sell agreement, a plan that designates what happens to the company and its owners if one person is no longer part of the business. Who takes over ownership? How are family members compensated for their part in the business, if they don’t want to take part?
Life insurance policies and other tools can be used to form a buy sell agreement, one that makes sure the owners and their families still benefit, no matter what the situation.
Step 7: Personal Wealth and Estate Planning
What will you do after your exit your business?
According to the non-profit Employee Benefit Research Institute, only 22 percent of people say they’re “very confident” they will have enough money to live in their retirement years. You may have a retirement plan like an IRA or 401(k), or even a pension, but chances are, a lot of your retirement money will come from the sale of your business.
EXITS can help you manage your sale proceeds so they best meet your goals and minimize tax consequences. This includes wealth management, insurance and long term care and estate plans (a will is a good place to start, but there may be much more you can do to secure your family’s future).
Most owners have some idea of the amount of money they need, from both the sale of their businesses and from other investments, to fund a comfortable “life after sale.” If you don’t know that dollar amount, ask your financial planner for a financial needs analysis today, or speak with an EXITS specialist.