Exit Planning for Business Owners

What is Exit Planning?

Often referred to as business succession planning, exit planning is the development of a strategy and a roadmap that enables the business owner to leave their business on their terms.

Why Do You Need Exit Planning?

At some point, every business owner will leave their business. The average business owner has 75% of their net worth tied up in their business and 80% of businesses are not saleable today for what the business owner expects. The transition out of the business will be the most significant financial event of their lives. Preparing your business for sale can be a hectic affair with few options, triggered by an unplanned event and constrained by time. This typically leads to many unpleasant tradeoffs and a result that falls far short of the owner's objectives. The alternative is a systematic approach initiated 3-10 years in advance and driven entirely by your exit objectives.

When Should You Start Your Exit Plan?

The short answer: three to ten years before your planned exit.

Owners must 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 every day - 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, in a nutshell, is the purpose of Exit Planning - to leave your business on your terms and on your schedule.

What is the Exit Planning Process?

Our process follows the BEI Seven Step Exit Planning Model. The goal is to develop a plan that will help you transition out of your business on your own terms so that you can leave when you want, for maximum value and minimize that tax consequences of the sale. Proper knowledge and preparation can possibly mean millions of dollars to you when you ultimately leave your company.

The BEI Seven Step Exit Planning Model is summarized as follows:

STEP 1: Exit Objectives
Issues Addressed Benefits to the Owner
Have you determined your primary planning objectives in leaving the business, such as:
  1. Your desired departure date?
  2. The income you need to achieve your financial objectives?
  3. The person to whom you want to leave the business?
  1. Clarifies priorities
  2. Facilitates progress by identifying a desired outcome
  3. Focuses energy on most urgent concerns
STEP 2: Valuation and Cash Flow
Issues Addressed Benefits to the Owner
  1. Do you know how much your business is worth?
  2. Do you know what the business’s future cash flow is likely to be after you leave it?
  1. Provides a baseline value by projecting cash flow.
  2. Measures business and personal resources both today and as a basis for future projections.
  3. Allows you to monitor progress toward the stated objectives.
STEP 3: Making the Business More Valuable
Issues Addressed Benefits to the Owner
  1. Do you know how to increase the value of your ownership interest?
  1. Grow business value and intangible value of the business.
  2. Reduce income taxes upon sale of business.
  3. Protect assets from potential business and personal creditors.
  4. Create ability to sell the business.
  5. Motivate and keep Key Employees.
STEP 4: Sale to Third Party
Issues Addressed Benefits to the Owner
  1. 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?
  1. Cash at closing.
  2. Eliminate financial risk.
  3. No family succession issues.
  4. Speed of exit.
STEP 5: Transfer to Insiders
Issues Addressed Benefits to the Owner
  1. Do you know how to transfer your business to family members, co-owners or employees while paying the least possible taxes, reducing risk and accomplishing your financial goals?
  1. Achieves Exit Objective of selling to Key Employee Group (KEG) or transferring to a child.
  2. Motivates and retains key employees.
  3. Planning reduces risk and increases amount of money received.
STEP 6: Business Continuity Upon Death or Disability
Issues Addressed Benefits to the Owner
  1. Have you implemented all necessary steps to ensure that the business continues if you don't?
  1. Objectives can still be achieved if you don't survive until exit.
  2. Retains ownership and control of company if co-owner departs.
  3. Can force non-contributing owners to leave the business.
  4. Provides consistency between lifetime and death objectives.
  5. Ensures survival of the business for the benefit of others.
  6. Results in family receiving value of owner’s interest, in cash.
STEP 7: Wealth Preservation Plan
Issues Addressed Benefits to the Owner
  1. Have you provided for your family's financial well-being and continuity should you die or become incapacitated?
  1. Preserve wealth, minimize taxes using both lifetime and death planning tools.
  2. Coordinates and integrates lifetime exit objectives wishes with estate plan.

One of the key ingredients to a successful Exit Plan is time. Although you can’t control the ups and downs of the M&A cycle, you can control the preparation of your business. If you plan to leave your business within the next 10 years, the time is now to start working on your business and bring under your control, the many moving parts that are required to accomplish a successful exit.

The first step is a complimentary half-hour telephone conversation with our Exit Plan Advisor. This enables you to learn more about the Exit Planning process and what is involved. The call also allows you to learn more about us and how we can help you. You'll know at the end of the call if the chemistry is right and you want to proceed.



Featured Exit Planning Consultant

Rick Tifone, MBA & BEI Certified Exit Planner

Rick brings over 25 years of executive management, marketing, sales, consulting, and exit planning experience to Cayenne Consulting. Rick specializes in working with business owners as a coach and advisor. Rick's clients become more effective, more successful, and get more joy out of their business. He has been working with companies involved with software development, IT services, manufacturing, real estate brokerage, commercial and residential real estate, executive recruiting, medical equipment, construction, and government sourcing.

As founder and CEO of Danet, Inc., a consulting and systems integration company providing solutions for the telecommunications industry, Rick managed the profitable growth of the company from one employee to over one hundred. He was recognized by the Pittsburgh Technology Council as the CEO of the fastest growing company in the $10M to $25M range. During his nine years at Danet, Rick guided the company through dramatic telecommunications market changes and a transition from a software company to a systems integration and consulting company. Rick conducted business throughout the U.S. and Canada, South America, Europe, and the Middle East.

Rick's previous public company experience includes positions at General Dynamics, Alcoa, Wang Laboratories, and Tandem Computers. He brings a unique perspective from being both a professionally trained business coach and an experience business leader who has started and grown successful businesses.

Rick's formal education includes a Bachelors Degree in Computer Science from the State University of New York at Potsdam and an MBA from the University of Pittsburgh's Katz School of Business. Rick also holds a BEI Certified Exit Planner Designation.



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