Business owners are so busy addressing everyday challenges that postponing business planning is common. Planning for the inevitable business exit is left for another time. That’s a problem.
Proper Exit Strategy Planning puts you, the business owner, in control.
Measuring the risks and benefits of a business exit plan can be quite a daunting task.
It is quite a bit of work and requires specialized expertise. But, many organizations have enjoyed remarkable success by using exit planning as a cornerstone of achieving their goals.
At its most basic, exiting a business is simple. It is turning business value to something more useful. That something is cash. Much like an army plans its extraction before its invasion – a business owner has an exit plan before starting the business.
If you have failed to develop an exit plan – you should really do it now.
So what to do?
First, know that you need to develop an Exit Plan with the assistance of your advisory team. You need to know what is your own, personal ultimate objective. Much of Exit Planning revolves around knowing what is that realistic goal. What you are trying to achieve and the gap between the end and where you are now.
Second, you must know the value of your business. And its associated attributes, strengths and weaknesses. The value of the business let you know if there is enough potential cash to be derived from a sale to achieve your goals. The attributes give a good indication of how hard it is going to be to convert the business value to cash. How hard it is to sell.
Third, knowing the attributes of your business tells you where you can make adjustments to increase the value of the business. Just as you fix up your house before selling it, so you need to do for your business. This could include anything from sales, marketing, operations, to the completeness and accuracy of your financial statements.
Fourth, based on the results of your exit plan you can do some “preventative maintenance”. This means a legal audit, organizational (business entity) planning and so on. Avoiding litigation and other business “snafus” will make the path to cash much smoother. You should engage your advisor for a yearly review to assess the status on these items.
Fifth, working with a tax planning advisor can help preserve value by minimizing your tax liability. Exiting a business is a taxable event. Regardless of how you do it – sale to an employee or third party, transfer to a family member, as a part of your estate plan, or even walking away and dissolving the business – the IRS will scrutinize the transfer and challenge you for additional taxes.
Our Exit Planning system revolves around the “True Value Focus” report. This is a comprehensive report that covers what you need to make a plan. We consider the above factors with a emphasis on achieving your goals in a realistic and systematic way. Approaching this in a systematic and complete way helps ensure nothng is left to chance.
Benjamin Franklin said “By failing to prepare, you are preparing to fail” and “Drive thy business or it will drive thee.”
