By Mark Stall and David Qu*
“Exit Planning” is the process of developing and executing a strategy for ensuring that owners of a privately held company obtain the maximum value of their business at time of exit, the owners’ personal and business goals are met, and that tax burdens are minimized.
Based on a recent Exit Planning Institute survey, 99% of business owners AGREED with the statement: “Having a transition strategy is important to both my future and for the future of my business.” Yet, 94% of those same owners acknowledged having no personal plan for life after the business sale, 79% have no written business transition plan in place, and 48% have done no planning at all. These facts are unfortunate, especially when considering most owners have poured years of their lives into their businesses and expect the sale of the business to be a majority source of their wealth.
Exit planning maximizes transferrable business value
Exit planning helps business owners identify, protect, build, harvest, and manage value. While exit planning may take many forms, it invariably requires an ongoing series of intentional actions over an extended period of time – often several years – in order to ensure that the business is financially, operationally, and strategically positioned to attract the best buyers and that the sale is properly structured to maximize value. For example, creating value by implementing processes to document standard operating procedures, improving cash flow through management of accounts receivable and accounts payable, ensuring that all employees have signed enforceable confidentiality agreements and non-solicit agreements (as appropriate), and implementing specific business plans that evidence sustainable growth and operating efficiencies. When determining the strategic value of a business, buyers want to see a track record of sustainable results and established relationships, processes, and procedures. A well-thought-out exit plan provides business owners with a roadmap for accelerating value creation and ultimately positioning the owners in a favorable manner at the negotiation table when opportunities present themselves.
Exit planning ensures owners are financially prepared
Dr. Stephen Covey once said, “Begin with the end in mind”. Exit planning helps owners identify personal and business financial goals, where setting goals is the first step in turning the invisible into the visible. Good exit plans identify short-term and long-term goals, detail actionable steps for execution, and help owners measure progress along the way. The process is a journey that helps business owners understand the components which create the underlying value in the business, and how it is created and measured. It allows the business owner to prepare for the financial, legal, and tax implications of the sale. So, when an opportunity of their lifetime presents itself, business owners are prepared to confidently transition knowing their goals are achieved.
Exit planning ensures there is a plan for “What Next?”
Not surprisingly, some business owners subsequently regret selling their business, and the most common reason is the owner not having a plan for life afterward. This lack of a tangible plan can cause an owner to drag their feet because they start to realize their life identity is deeply entangled with the business. Wealth and money cannot solve owner identity questions, this is why many business owners wait until it’s too late to maximize the sale of their businesses, leaving significant unrealized value on the table in the end. Exiting planning helps owners to prioritize exploring options and address these questions early to avoid cold feet or regrets later.
Next Steps? Starting early and working with qualified advisors
In summary, the exit planning process and outcome prepare companies and business owners for successful exits that maximize wealth transfer and enable a productive life after the transaction. Ultimately, working with a mergers & acquisition advisor and legal counsel who not only has transaction experience but also understands your business and buyer mentality will be the most value-added decision in solidifying a business owner’s legacy and generational wealth.
Mark Stall of Stall Legal and David Qu* of Rimonark Advisors can help you identify the sources of strategic value in your business, and work with you and your team to maximize the value of your business and ensure your business is ready when the right opportunity arises.
*About David Qu and Rimonark Advisors
David Qu is the Managing Director of Rimonark Advisors, a client-centric mergers and acquisition advisory firm based in Cincinnati, Ohio. Rimonark helps clients maximize wealth through business growth advisory, business sale preparation (exit planning), and business sale transaction services.