Chances are, as a business owner, you have heard of exit planning. But have you ever sat down and considered it in all its glory? Exit planning is a crucial step to any business, no matter what stage. In fact, the earlier you consider it, the more time you have to create an effective exit strategy that will ensure your business stays successful even after you are no longer in the driver’s seat.
Did you know that exit planning and succession planning often get confused? While the two sound similar and have some common themes, they are actually different.
- Succession Planning – Focuses on identifying successors within a business and preparing them to replace the existing business leaders; Focuses on transfer of leadership from one generation to the next
- Exit Planning – Analyzes all of the factors that impact a business owner, including current and future planning; Identifies strategies and steps that are most likely to allow the business owner to reach their goals
In this next series of blogs, we will be discussing a framework for exit planning and what you, as a business owner, need to know to keep your business running smoothly after you exit.
The steps we’ll be discussing are based on BEI’s Seven Step Exit Planning Process. They include:
- Identifying Owner’s Objectives & Goals. This step will focus on identifying primary planning objectives, such as desired business departure date, who you want to leave the business to and more.
- Quantifying Business and Personal Financial Resources. In this step, we will talk about valuation and cash flow. This will include asking yourself how much you know about the worth of your business, and how much it is expected to bring in future cash flows.
- Business Value Enhancement. In order to make the business more appealing to your ownership interest, you must know how to increase value.
- Ownership Transfer to Third Parties. To make sure that a smart transfer is made to a third party, this step will ensure you know how to sell to a third party in a way that will maximize your cash while minimizing your tax liability.
- Ownership Transfer to Insiders. If you are considering transferring the business to someone on the inside, such as family, this step will be of high importance to you. This step can also help you decide whether an inside or third party transfer is right for you.
- Continuity Planning. This step will help you ensure you have all the necessary precautions taken to be sure your business continues on if you don’t.
- Personal Wealth and Estate Planning. It is imperative to have a plan in place to provide for you and your family post-business sale. This step will help make sure you are on the right track for financial security.
Prepare to join us over the course of these next seven blogs to learn a framework on successful exit planning and how it can benefit you and your business now, as well as in the future.