What is an Exit Plan?

“We’ve Gotta Get Out Of This Place” – classic 1965 song by The Animals

I have come to expect the “exit” question from my mature business owners but I am hearing it more from emerging businesses these days. At times prompted by reaching inflection points, changes in key personnel or just pure exhaustion, owners want to know the best way to “exit stage right.” The key questions center around, “Is the timing right?” and, “Am I at the point of getting the most from what I have built?” Well as Robert De Niro’s character Paul Vitti said in “Analyze This,” “It’s a process.” So let’s take a closer look.

I had the privilege of serving as Chair of the Business Exit and Succession Planning Committee of the NY State CPA Society and we had a process for both of these milestone events. The “seven steps” of an exit plan with some comments follow below:

  1. Identify owner(s) exit objectives. This is the gaiting factor. The owner has to be confident it is time to move on and most importantly, that he or she has something to go to. This is particularly important for more mature owners.
  2. Quantify business and owner financial resources and needs. Tied closely to the first point, the calculation of “what you need” many times governs “what you want.” You have to complete the exercise to calculate what you need to live, and I will assure you your estimate of this amount will be grossly underestimated.
  3. Maximize and protect business value. Performing a SWOT analysis on your business and even some sell-side due diligence (see my 11/18/16 post Seller’s Due Diligence – An Emerging Tool in the Sales Process) will help you clarify how others might see you and what pieces have to be “fixed” before you start on this journey.
  4. Consider ownership transfer to third parties. Sometimes the hardest decision to make; especially for family owned businesses who hate to see control of the company go outside the family. But if liquidity and exit are important, this may be your best alternative.
  5. Consider ownership transfers to insiders. So you want to keep it all in the family. A common transaction is a sale from one generation to the next. It may not maximize liquidity but it accomplishes a very common emotional objective.
  6. Ensure business continuity. Nobody wants to buy a business (or at least pay good money for it) that is winding down or appears to be at the end of its useful life. I know it sounds counterintuitive but regardless of the exit plan, a robust program to keep the business intact and growing should be part of your exit strategy.
  7. Complete wealth and estate planning. Whatever you reap from your successful exit, you need to do some planning in advance to make sure taxes are minimized both for you and your estate.

So there it is; a brief journey through the exit plan process. As you would suspect, there are professionals who can act as your guides to help ensure your plan is a success and as in all things in life, the more time you have to prepare the higher the chance it will be successful. So while it might be “the last thing you will ever do,” follow the process and hopefully your journey will be a success.


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