What is an Exit Plan?Submitted by Business Owner Succession Strategies on February 10th, 2021
Simply put: an exit plan is a written document that describes the business owner’s plan to exit the business according to his or her terms.
But what does that REALLY mean?
Really, an exit plan is the beginning of an “exit process” and more important, perhaps, than the plan itself is the act of planning.
I see exit planning as a four-stage process.
The Exit Planning Process
The process of exit planning starts with Phase I. In this initial phase, a business owner assesses where they are currently. They answer three questions: when, how much, and to whom.
In our exit plans, Phase I includes the development of a comprehensive financial plan, a recommendation to get a business valuation, and preparation of and assistance with Business Continuity Planning. Our tools allow us to ask and answer what-if’s: what if I exit in a year, three years, five years?
The outcome of this first phase also answers the question: how much do I need to NET from the sale of my business, so that together with my savings, I will be able to meet my retirement income needs?
Lastly, Phase I examines what the business owner plans to do after the sale of the business.
Phase II is getting your legal house in order. This means exploring Personal Estate Planning and Business Succession Planning from a legal point of view.
Phase III is where the business owner spends time building value in the company. In this phase, the business owner also works to decrease their “owner-centricity” in the business. They may install and implement systems and standard operating procedures to make buying the company a less risky proposition for a new owner.
The business owner would be well-served to get help in this stage with business value consultants and exit planning advisors to develop a plan increasing transferrable value. And, contacting a business broker or an M&A banker at this stage is often a good idea, too.
Phase IV is the final stage. This is where the business owner feels they are ready to exit and move into retirement. They may know they are ready because they can look back on their business, they can see that they have de-risked certain uncertainties along the way, and they have created an attractive business for a new owner to buy.
Phase IV also involves getting the Exit Planning Advisor, Attorneys, Bankers, Brokers, and CPAs together to prepare for the final sale or transfer of the business. Once the business has sold, the business owner will then be able to move into their retirement.
You know, according to the Exit Planning Institute (EPI) Survey of Owner Readiness, 99% of business owners agree that they should have a written exit plan. As it turns out, though, most business owners have no plan at all. So, why would everyone agree that they should have plan…but more than half don’t have one?
I think it’s because many business owners don’t know how to get started. Maybe it seems too daunting. Maybe it’s because the owner knows he or she will have to answer tough questions. Maybe it’s because the owner simply doesn’t want their life in the business to end. There are lots of reasons business owners procrastinate the exit planning process.
I’ve noticed, though, that nearly every exit planning client with whom I’ve worked
has a similar reaction once we start our plan – they seem to feel at peace that they are “moving forward” toward the next stage of their lives.
Let’s help business owners move forward!
From the desk of the President
Exit Planning Institute – Twin Cities Chapter
Mark C. Hegstrom, Certified Exit Planning Advisor
Business Owner Succession Strategies (BOSS)
Business Owner Succession Strategies (BOSS) and LPL Financial does not provide legal or tax advice. Please consult your legal or tax advisor regarding your specific situation.