By Bruce Juhola / Rimrock Partners
Owners begin thinking about the Exit Planning process when two streams of thought begin to converge. The first stream is a feeling that you want to do something besides go to work everyday - either you would like to be someplace else - doing something else - or you simply no longer get the same kick out of doing what you are doing.
The second stream is the general awareness that you are either approaching financial independence, or making significant strides toward reaching that goal, or can achieve financial independence by selling your business. When these two streams converge, thoughts flow inevitably towards exiting the business. Hopefully, when that happens, your Exit Plan is in place and you are actually able to leave the business when you want to. That is the purpose of Exit Planning - to leave your business on your terms and on your schedule.
However, in our experience, most business owners fail to plan. Why is that? We' ve learned that there are several primary reasons that owners hesitate to begin the planning process:
- They may be too busy fighting alligators that they don' t have time to drain the swamp. Daily demands mean all of their time and energy are spent working in the business - leaving little time to work on the business of " leaving their business" .
- Owners may be unaware that there is an Exit Planning process that provides a template showing them the steps they can take in order to help them leave their businesses "in style" .
- Some lawyers, CPAs, insurance professionals and investment advisors - your professional advisors - may not know how to effectively work together to help you leave your business on your terms.
- Finally, many owners have a fear of the unknown - what they will do after they exit their businesses.
What kind of "Exit Plan" allows a business owner to leave his/her business in style? And, just how is one created?
Of course, plans vary but, properly crafted, each Exit Plan has several common elements and is the result of a proven step-by-step process. Owners often best grasp these elements, or steps, when framed as questions.
Step 1: Exit Objectives
Have you determined your primary planning objectives in leaving the business, such as:
- Your desired departure date?
- The income you need to achieve financial security?
- The person to whom you want to leave the business?
Step 2: Valuation and Cash Flow
Do you know how much your business is worth? Do you know what the business's future cash flow is likely to be after you leave it?
Step 3: Making the Business More Valuable
Do you know how to increase the value of your ownership interest?
Step 4: Sale to a Third Party
Do you know how to sell your business to a third party in a way that will maximize your cash and minimize your tax liability?
Step 5: Transfer to co-owners or family
Do you know how to transfer your business to family members, co-owners or employees while paying the least possible taxes and enjoying maximum financial security?
Step 6: Business continuity upon death or disability
Have you implemented all necessary steps to ensure that the business continues if you don' t?
Step 7: Wealth Preservation Plan
Have you provided for you family' s security and continuity should you die or become incapacitated?
If you are able to answer "Yes" to all of the above questions, congratulations! You have a solid Exit Plan in place.
However, if you were not able to answer "Yes" to all of the questions, then you may want to learn more about an Exit Planning process. Creating and implementing your Exit Plan may be the most important business and financial event of your life.
In future columns, we will summarize each Step owners will take to create a comprehensive Exit Plan. We' ll also look at who can help you take each Step of the process..
This column appears regularly in Cascade Business News.
To reach Bruce Juhola, please contact us.
