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Value Acceleration & Exit Planning

Exit Planning: What Is It & Why Do It?

Exit planning is an important part of business planning. Whether you plan on handing over your business to the next generation, selling it, or working until you cannot anymore, the fact is that you will not own your business forever. Therefore, exit planning, regardless of where you may be in the business life cycle, should be an important component of your overall business strategy.

While planning ahead for your exit can provide peace of mind, inadequate exit planning can negatively impact the success of the leaving party and the business itself, both during and post-exit. Business owners who want long-term success must take exit planning seriously. What exactly is exit planning and what are some of the key benefits of customizing a smooth “passing of the baton” to the next owners?

What is Exit Planning?

Exit planning is a comprehensive strategy that allows business owners to exit the business on their terms. It answers all personal, financial, legal, and tax-related questions regarding the change in the ownership of a privately owned business. Furthermore, it includes contingency plans for death, disability, disagreement, divorce, and other unforeseen circumstances.

Chris Snider, the President and CEO of Exit Planning Institute, has coined the definition in the following words: “In a nutshell, an exit plan asks and answers all the business, personal, financial, legal and tax questions involved in transferring or transitioning a privately owned business.”

Exit planning ensures that business value is maximized, personal and business goals are achieved, and tax value is minimized at the time of exit. It is a team effort that includes a business owner, an advisor team, and an exit planning advisor. The goal is to smoothly transition ownership of a privately owned business in a way that streamlines the process, benefits the exiting party, and allows greater control over the exit process.

Benefits of Exit Planning for Business Owners

Below are some reasons why exit planning constitutes a crucial part of your success as a business owner.

Higher Control over Business Exit  

One of the most common regrets that most business owners express during, or post-exit is not starting exit planning sooner. Proper exit planning lets them get the most money out of their business at the time of the exit.

Moreover, it provides them greater control over who takes over the business. As a current business owner, you can plan exactly when you exit the business, how to go about it, how much money you gain, and who would own the business after you.

Maximize the Largest Asset

According to the Exit Planning Institute, about 80% of the net worth of an average business owner is tied up in their business. It can be considered the same as putting all your eggs in one basket, which is not the best business strategy. This is where exit planning comes to the rescue.

Business owners can employ exit planners to expand the business – their largest asset – to make it more profitable for themselves and future buyers. It also ensures that the business owner has enough financial security to maintain their lifestyle upon exiting the business.

Gain Clarity

Timely exit planning allows business owners to understand what is important to them while running and after exiting the business. For example, business owners often initiate the exit by selling the business to a third party.

However, conditions like shutting local operations and losing current employees keep them from following through on their initial plan to safeguard employee financial futures. Exit planning can avoid such chaos as it allows the business owners to articulate their own needs and wishes and plan accordingly.

It’s clear that exit planning offers numerous benefits to business owners. However, over the past few years, exit planning has emerged as a lucrative niche for advisors with the right skills to help business owners. A successful advisor with the skills to lead business owners toward their desired outcomes creates a win-win for everyone involved.

Furthermore, business owners are only starting to realize the need for exit planning. Demand for exit planning services is already high and is only expected to increase, creating strong demand for skilled exit planning advisors.

Windes: Delivering Exit Planning Services for Business Success

Successful business owners are highly competitive and like to have control over their destiny. Exit planning matches these traits as it provides greater control and allows them to work towards important personal and business goals. With three in every four businesses expected to change ownership in the next ten years, now is the ideal time to start considering exit planning.

Remember, it is not enough to build a business. You must also have an effective exit strategy in place to retrieve your money when the time comes. Windes can help. We specialize in value acceleration, exit planning, and business transitioning plans. Contact us today for more information.

 

Rob Henderson
Robert B. Henderson, CPA, MST, CEPA, CM&AA
Partner, Tax, Value Acceleration & Exit Planning Services
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