Extracting Wealth Through Effective Exit Planning

If you are like most business owners, you have devoted an immeasurable amount of work and resources into growing your company. With all that you have invested, doesn't it make sense to plan an exit from that business that will protect the wealth inside of it?  After all, exiting your business will certainly be one of the most important financial events of your life. It is important to understand that an exit is not simply the sale of your business. Rather, it is a process that may occur over many years and selling your business is just one of many exit options available to you. Designing your exit strategy will take time, planning, and forethought but will allow you to reap the greatest reward for your years of hard work.

Most often, the majority of an owner's wealth is tied to their privately held business. In addition, most owners depend upon their business for income and perks for the overall maintenance of their lifestyle. How then does one harness that accumulated and illiquid business wealth while minimizing the taxes and fees you will need to pay? The answer - you achieve this through planning.

An exit plan outlines the succession of your business's ownership and control by taking into account all business and personal factors. The time period for the exit plan must accommodate the business and where it is in its maturity, your desired time-frame and must include a plan to develop or identify potential successors and/or buyers. In order to be successful, the plan needs to be centered on your unique vision for your business as well as your life after the exit.

How do I prepare for my exit?

The process of creating an exit plan begins with two questions, "Are you financially ready to leave?" and "Are you mentally ready to leave?" Understand that you may not have the same answer and, even if that answer is no, it certainly does not mean you should not be planning for your exit. To prepare financially you need to accurately assess how much money you will need to maintain your lifestyle. This entails understanding your dependency on your business not only for income, but for benefits such as car payments, health insurance, and other lifestyle expenses. Determining what you need versus what you have, will help you choose an exit option that can bridge that financial gap.

The mental preparation may be harder than you expect. Exiting a business that has been built by years of hard work and dedication can be a difficult emotional hurdle. Begin by answering these questions:

• How involved are you in the day-to-day operations of your business?
• What will you do with your time when you are no longer running the business?
• Do you view your business as a ‘job' or as an ‘investment'?

Simply taking the time to answer these questions is the first step in mentally preparing yourself for your exit. This process, if given the proper amount of attention, will allow you to overcome any psychological barriers that can prohibit you from properly planning for your exit. Being prepared will allow you to think clearly throughout the exit process so that the decisions you make are based on objective criteria instead of the subjective way in which you feel about the exit. These are challenging issues for every owner of privately-held businesses. The sooner that you begin to address you and your businesses' readiness for an exit, the better prepared you will be.

Next, what are your exit options?

The most obvious exit solution is the sale of your business to another buyer, perhaps someone in your industry. Other strategies include transfers to family member, to management teams, to private equity groups, or to employee stock ownership plans (ESOPs) as well as gifting programs. Each option offers benefits as well as consequences and some may be better suited to your exit plan than others.  It is your responsibility to learn about the pros and cons of these different options and apply them to the personal goals that you set for your exit. By simply knowing that a variety of exit options exist, you raise your understanding and the potential of creating an exit plan that suits your specific needs.

In order to take the final step in the exit planning process, you will need to understand some of the technical components such as taxes and deal structures so that you can measure and weigh the relative factors involved with your exit.

How do you execute your plan and protect your wealth?

The process of exiting a business is complex. To execute the plan, it is vital that you gain the support of advisors who will help you though the process of protecting your wealth while minimizing taxes. Many tax characterizations are tied to how transactions are structured. Therefore, it is critical that you determine the actual financial outcome (vs. just the sales price) of your exit plan. Once you have, you and your team can determine if there are any ways to change the structure of the exit to improve your tax situation. This is an important consideration in protecting your wealth. To help you navigate this part of the journey you should consider an advisory team that may include your; attorney, accountant, financial advisor, insurance advisor, and a mergers and acquisitions advisor.

Summary

There are basically three stages to the exit:

• First, you set your goals by understanding your readiness for an exit and your vision for what you want your business and post-exit life to become.
• Next, you outline your exit options and determine which is best suited to your situation and plan.
• Finally, you assemble your team of advisors to assist you in understanding the technical aspects of the exit along with how to execute each phase of the plan.

You have built a successful business and for that you should be congratulated.  Caution should be exercised against thinking that you can simply weave your way through the exiting stage of your business alone, it is without question one of the most difficult and complex stages. Without proper planning, consideration and advice, you can too easily give away hard earned assets.

At Premier Sales, we can assist you in fulfilling your exit plan objectives with optimal results. A key component of your exit plan is understanding the market value of your business. Click here to learn how to obtain your Free Business Analysis And Valuation or call us at 480-905-9030.

Once you know the exit options for your business and the value of each, your strategy will hopefully become clear to you. In the end you will not only have a plan to exit your business, you will have the confidence that you have protected the wealth that you have worked so hard to create.