Exit Planning – The Process and Your Advisors’ Roles

By

Joan M. Ridley, CFP™, CEPA

 

Start at the top.

• Identify Goals. What do you envision that your life will be like and what will you be doing after you are out of the business? Although your exit is likely to be a few years away, it’s not too soon to have this conversation. Start with a clean canvas where money and time are no object. Give this a lot of thought. The key here is to identify and commit to whatever you are passionate about. Here are some examples: work with underprivileged children, maybe in a foreign country; be a volunteer for the arts; or travel and write about your adventures. If you are not passionate about your post-exit goals, you might run out of energy before the exit implementation is complete, and the whole thing might fall apart, seriously jeopardizing the value of your business. How do you think youwould like to exit? There are at least 34 ways to leave a business, including transition to family, employees, other shareholders, non-profits, and to an outside third party. How you exit will have a direct impact on your post-exit lifestyle.

• Moving clockwise, Gather Data: In this step, we gather and organize both your personal and your business information. We gather personal information because part of our process is to quantify the lifestyle and gifting that you envisioned in step one. We add the perks currently paid for by the business to your personal income statement to get an accurate picture of your post-exit before-tax income needs. We also obtain a business valuation and examine the value factors in your business. This analysis helps us to identify how well your business is positioned for certain exit strategies and where value could be added.

• Continuing clockwise, Analyze the Data: At this point we analyze and crunch the numbers to discover, based on what you are wanting to accomplish, the most feasible ways to leave the business. We consider the current value of the business, your time horizon, the opportunities to increase the value of the business, if need be, your financial resources outside the business, the type of business you have, the economy, and numerous other parameters. Generally, at this point, there are two to three potential exit strategies that might be right for you. We analyze all two or three before recommending which one is right for you. It is very important that your exit planner, and team members, have no bias or agenda about how you should exit until the analysis is completed.

• Continuing clockwise, Determine Strategy: We are now in a position to help you identify your best exit option, based on the facts and your personal preferences gathered in steps one to three above. If our analysis in step three indicated that you will need a greater amount of net after-tax proceeds than you are likely to have, we will work with you, as a business consultant, to increase the value of your business in order to close that value gap. This part of the process could take anywhere from three months to three years before you are ready to move on to the next step. If the exit strategy that you prefer can be accomplished based onyour personal preparedness, the current position of your business, the market, and other conditions, then you and the exit planner can move on to the next step.

• Continuing clockwise, Implement Strategy: At this point the chosen exit strategy is implemented. Depending on the exit strategy you have committed to, we will introduce you to those with the expertise to make it happen. The new team member(s) could be an ESOP specialist, mergers and acquisitions advisor, estate planning attorney, or some combination of these professionals.

• We have now come full circle. You are totally, or partially, out of the business, depending on the strategy you selected. You are now in a position to live the life you described to us earlier.

Move to the inner circle of the graphic where you will see who will do all this work to help you exit.

Your exit planner, Business Wealth Solutions in this case, is in the center. The role of your exit planner is to work closely with you to be certain that all of the above steps are executed correctly. The role of the exit planner is to be proactive in managing the entire exit planning process. This includes putting together the exit planning team. The team can include some of your existing advisors, while others might be recommended by your exit planner where special expertise is needed.

 

Joan M. Ridley is president of Business Wealth Solutions, a Dallas-based advisory firm that consults with business owners about how to successfully grow and leave their business. Visit our website at www.bwsllc.net. Call us today at 214.692.9192 for a complimentary meeting to learn how we can help you get where you want to go.

Copyright 2009 Joan M. Ridley