The exit planning process can provide you with direction and vision for your business, identify opportunities for growth, and determine areas that may need improvement. As a business owner, you should start thinking about your exit plan as early in the life of your business as possible and develop a strategy that can help you achieve your financial and personal goals…both short and long-term!
Recently we reviewed the first three benefits of planning in advance for your exit. Here are three more of the Top 10 Benefits of Exit Planning.
- Groom Others to Assume Leadership Positions
A key part of a successful transition is finding and grooming the right people for key leadership positions and decreasing dependence on the current owner, whether those key employees plan to buy the company or not. In order to ensure business continuity, someone has to take over the reins. But it can’t be just anyone and it may require more than one person to fill the outgoing leader’s big shoes – not an easy task.
Careful thought, planning and time are needed in order to select the most appropriate successor(s). And to eventually succeed in the new role, the successor(s) will require hands-on mentoring and training in order to achieve a smooth, cohesive transition, which when executed effectively, will benefit the company for many years to come. Having a strong management team in place and limited owner dependence will also increase your attractiveness among potential buyers.
- Protect Business and Personal Wealth as You Grow
You’ve worked hard to build your business, make sure you’re protected. As you well know, being in business is inherently risky. And as companies grow, so do the risks of losing company value. You should have a plan to minimize and mitigate both your personal risk and business risk in order to protect everything you’ve worked so hard to achieve.
Examples of wealth preservation strategies include:
- Proper asset titling/ownership
- Having the right kind and level of insurance coverage for the company and shareholders
- Wealth diversification outside the business for the owner
- Strategic estate planning
- Properly funded and well written shareholder/partner agreement
- Executive compensation plans to entice management to stay on beyond the exit
- Uncover Your Exit Options
Once your goals are quantified and you’ve calculated how much you need to net from the sale of your business, you should examine the various exit options that are available to you, both internal and external. You can then consider the pros and cons of each and how well they match up with both the financial (how much money you need) and non-financial (what is important to you) goals.
Internal options include management or family buyouts and employee stock ownership plans while external options may include different types of buyers and investors in the marketplace, what they are looking for and how much they would be likely to pay for the company. As you weigh the various options, it is imperative that you understand that different transfer options have different transfer values, varying fees and taxes, as well as different personal and business implications.
The Bottom Line
Planning for a successful sale or transition is likely to be one of the most significant challenges you will face. It pays to get educated and evaluate your options as early as possible so that you can plan for your successful exit.