Most owners are true entrepreneurs – self-starters, independent souls with a vision that has served them well. These owners are used to being the decision-maker when it comes to running their business. They carry a lot of responsibility on their shoulders throughout their career, and always have a lot on their mind. Yet even the most fervent, dedicated owner finds themselves on some days dreaming of leaving it all behind. Thus it’s natural that the decision as to when and how to exit that business should also be something that they take in stride when the time is right. Right?
Not necessarily! The challenge is that to have a successful, satisfying exit there’s a lot to be considered – typically far more than the owner may first contemplate. To explain, it might be easiest to think of the process in the simplest of terms: Who? When? How?
Who Should Be Concerned with Exit Planning?
Clearly, the primary concern on any exit strategy is the owner himself-and rightfully so! But a satisfying exit involves a number of other folks – I’ll call them the stakeholders. There’s obviously the spouse, who may or may not be similarly prepared for the next phase of life. Next in line, the owner’s children (I’ll call them Gen 2) come to mind – Does the owner truly understand what the expectations of Gen 2 are? And why stop with Gen 2 – sometimes there are expectations that Gen 3 are holding with respect to the business, too. Moving away from family member stakeholders, there may be business partners who will be directly impacted by an owner’s exit plans. The management team will most certainly be concerned about their future and the future of the Company without the daily involvement of the founder. And let’s not forget ALL the employees, whose livelihood and that of their families, depends on the Company’s continuing success. As a business owner, you’ve taken pride in providing those jobs all these years past. It’s natural that you should be concerned about ensuring their future as best you can.
When Should You Start Exit Planning?
Most minds turn to retirement when Exit Planning is mentioned. But unlike the thought process of the typical employee, age alone is not the sole determinant of a business owner’s Exit timing. Yes, age remains an undeniable factor, but so does health – both of the owner and of the business itself; for example, has the business value grown to a level sufficient to provide for your future financial needs? (If not, you will not see your exit as satisfying.) Opportunity also becomes a significant factor in the “when” question; such as when an unexpected opportunity presents itself, is the owner ready to act? And I would be remiss if I fail to mention the possibility of an unplanned exit due to disability or death. My point of all this is that Exit Planning is best evaluated under a variety of possible scenarios, so that regardless of the “when”, you and your stakeholders are prepared and have a plan.
How Should You Plan Your Exit?
This last question is broad, encompassing both business and personal aspects. How many of the following questions can you answer confidently?
- How will you fill your days after you leave the business?
- How will you define yourself if you sell the Company?
- How much net worth do you need to meet your financial needs – lifestyle, legacy, philanthropy?
- How will the Company run in your absence? Are the right people and right processes in place?
- Are the expected successors the right people, with the proper skill sets, to guide this Company into its future?
- How should the Company be structured now to minimize taxes when you exit?
- How will a buyer be identified?
- How should a transaction be structured?
- If you plan to leave the Company to the next generation, how can Gen 2 provide you with the financial resources you need?
- Same question: if you plan to sell the Company to your management team, how will they get the funds to pay what you know the Company to be worth?
- From any transaction, how much will the net proceeds be? Will that meet your financial needs? If not, how can the value of the Company be grown to meet those needs?
The list of questions tangent to the Exit decision can go on and on, dependent upon each unique situation. No business owner has all the answers. Nor can a single advisor provide all the answers. An Exit Plan involves legal aspects, estate planning, tax planning, investment banking considerations, operational matters, family matters, etc. There is no canned plan that fits every situation. Quite the contrary, every business owner’s situation is unique with its own mix of stakeholders, personal and financial needs, and viable options. How can an owner navigate this process and improve the odds of a successful, satisfying exit?
Clearly, you need a team to help you.
Exit Planning teams typically involve:
- Valuation professional
- CPA
- Financial Planner
- Tax Professionals (Individual, corporate, estate/trust, transactional)• Attorneys (Corporate, estate planning, and M&A)
- Others as required by circumstances (such as investment banker, insurance professional, etc.)
Like any great team, that team needs a leader, call it a Quarterback, to bring the team players in at the right time, and to keep the team moving in the same direction with the same vision and the same endpoint in mind. That leader is there to ensure that all of the stakeholders are considered and that all pertinent issues are evaluated by a team that understands both the issues and the objectives, a team that works together to strategize a cohesive plan that meets your needs.
So is Exit Planning a personal decision? Ultimately, YES, but it’s a personal decision thoughtfully evaluated and backed up by a team focused on you, the owner, and on all those things important to your sense of success.
How Can DHJJ Help?
DHJJ has an Exit Planning team of professionals that understands the financial and emotional considerations business owners face. We employ a process that addresses the myriad of decision points in a structured, measurable format. Please contact DHJJ at 630-420-1360.
