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  • Writer's pictureJayne McQuillan

Exit Planning... Is Not What You Think

Journey Consulting Green Bay WI Business Consultant

For many business owners, the thought of exiting their business is overwhelming. Some are afraid to leave what they know, some feel trapped by their role in the business, while others are not sure what is next. For those who prefer to keep their head in the sand, there is real risk. Fifty percent of exits are not voluntary owing to death, disability, divorce, distress or disagreement, and the pipedream that owners control the timing often rings hollow. Even though 76% of baby boomer business owners plan to transition their businesses over the next 10 years, 49% do not have a transition plan and two-thirds are not aware of all their exit options even though 80-90% of their wealth is tied up in the business. To complicate matters further, 70% of businesses on the market do NOT sell and, if they do, 12 months after selling, 3 of 4 business owners profoundly regret the decision. It is easy for an owner to direct their energies on the day-to-day operation of the business and much harder to take steps to plan for the future; however, failure to do so puts the business in a perilous situation. Clearly the need to plan for a transition is critical to long-term success – both for the owner and the business.

The great thing about exit planning is that it is just good business strategy. It focuses on building transferrable value that maximizes the owner’s opportunity when he/she decides to exit the business. It mitigates the non-voluntary exit issues discussed above so that, regardless of what happens, the business is secure. This solution focuses on:

  • Creating a comprehensive roadmap for success (business & owner)

  • Building a book of business that creates value (proof)

  • Building, harvesting, and preserving wealth

  • Building a master plan for the owner

And while this solution appears simple, it is not as straightforward as it seems. Owners have complex relationships with their business and the lines of personal, financial and business are often interwoven; thus, they need to be addressed holistically, not in isolation.

The Value Acceleration Process helps with that by breaking down otherwise complicated paradigms into three main phases: discover, prepare and decide.

  • Discover. During this phase a business valuation is conducted along with a personal, financial and business assessment which scores the business attractiveness and the owner’s personal, financial and business readiness. This information is then analyzed and used to create a prioritized action plan that leads to the prepare phase.

  • Prepare. During this phase the focus is on addressing the priorities identified in the action plan both for the owner and the business. From a business perspective, this often involves de-risking the business to ensure repeatable processes and strong intangibles such as people, structure, culture, and customers exist. A focus on development of these assets is important since they directly drive business attractiveness. From a personal and financial perspective, the owner is focused on planning for his/her future, specifically, the activities that enable a transition to occur. This may include tax planning, ensuring long-term financial security and other activities that promote security and readiness. These plans are reviewed and updated every 90 days until all tasks are addressed. Depending on the business, this phase takes between 6 months and 3 years to complete.

  • Decide. With business value maximized, the owner can decide if he/she wants to exit or grow the business. This phase is about revisiting that question every 90 days, knowing that the business is well-positioned to go either way depending on the owner’s desire. This gives the owner the freedom and flexibility to make that decision when he/she wants; it also protects the business against a non-voluntary exit situation.

Exit planning does not reside with one person, but rather with a team – each with their specific area of expertise led by a Certified Exit Planning Advisor (CEPA). Planning typically takes 3-6 months and the whole transition process can take 3+ years or longer to complete. The core team is comprised of the owner, spouse/family, wealth manager, attorney, CPA, and other specialists deemed necessary. These members are involved, as needed, throughout the process to ensure the intricacies of the business and personal are addressed.

Exit planning is just good business strategy. For owners planning to exit in the next 5 years, it is critical to get started now to ensure enough time to build value and garner the best-selling price. For those planning to exit beyond 5 years, or those with no plans to exit at all, de-risking the business and creating value will provide you with the plan, team, protections and infrastructure necessary to create exceptional trajectory both for you and your business. The time is now to start…are you ready?

Statistics used in this article can be found on the Exit Planning Institute website:

Jayne McQuillan, CPA, MBA, CEPA is a strategic management consultant, and the owner of Journey Consulting, LLC, in Green Bay

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