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Waiting to formulate a business transition and exit plan could cost you and the ones you love dearly.
By Vic Panus In part one of the great American success story, an irrepressible entrepreneur defies the odds and builds a successful business enterprise.
Although most of us want to believe otherwise, the sequel to this story does not start with the founder of the business retiring at a ripe old age while still physically fit, mentally sharp and extremely wealthy.
Instead, part two of the great American dream often begins with the owner "waking up in a minefield" and discovering that an unwelcome contingency has shattered business as usual and threatens to destroy a life's work. That is when whoever is responsible for creating the contingent business transition and exit strategy finds out just how well they did at anticipating the unthinkable and coping with the chaos that is sure to follow. Of course, the value of the business as a "going concern" is what's really at stake when an unexpected calamity strikes. Never Too Early
It is never too early to define your exit objectives and begin developing a business exit plan. As the Roman philosopher Seneca, the younger, said, "When a man does not know which harbor he is heading for, no wind is the right wind."
In fact, it makes a lot of sense to define your family's financial goals and craft your contingent plan for leaving the business at the same time that you make your initial commitment to launch or purchase the business. That is, your exit plan should be part of your entry strategy. How else are you going to know when you've "won;" or, that the time has arrived to give up the business?
Although there are countless variations of business exit strategies, they all boil down to three choices:
- Pass the business on to family during lifetime or at death
- Sell the business during lifetime
- Sale of the business at death
Looking at business planning through the lens of an owner-rather than purely from a management or operational point of view-requires you to focus on using your business as a vehicle to accumulate wealth for personal (and family) purposes, decrease your income tax burden and preserve a valuable estate for the people you care about. 10 Critical Steps
Succeeding at owner-level exit planning requires that you take 10 critical steps with the help of good professional advisors:
- Admit the simple fact that, sooner or later, you will leave your business and the timing of your departure may not be of your choosing.
- Sit down and figure out how much retirement income you will need, what your target retirement date is and to whom you will transfer the business (e.g., family, key employee(s), co-owner(s) or outside third party).
- Engage a valuation expert to put an objective value on the business.
- Build an advisory team of trusted personal and business advisors to assist with development and implementation of your exit plan.
- Develop fringe benefit and incentive programs that will motivate and ensure the retention of the company asset that most directly affects its value: your workforce.
- Arm yourself with a working knowledge of the tax code and how it can be used to accumulate wealth outside your business.
- Analyze the three basic exit strategies outlined above and decide which one works best for you under the most probable future scenarios.
- Design and draft a business continuity document that addresses as many as possible of the contingencies that could trigger your sudden departure from the business.
- Develop a roadmap (five-year minimum) for reaching your personal financial goals.
- Schedule quarterly workshops with your advisory team over the next 12 months to help you track your progress toward your business exit objectives.
Attorney Vic Panus advises owner-led and family-owned businesses on a range of matters, including business transition and exit planning. He can be reached at (816) 587-2987. |
