7 Steps to Exit Planning Success

All business owners eventually exit their businesses – by choice, death, or otherwise —no matter how successful, powerful, or high growth they are. And like building a successful business, a successful exit is usually the result of a strong plan, not wishful thinking or assuming things will fall into place. But what does that plan typically look like?  

What more do I need?  

Samir Rahman’s logistics company brought his family wealth, his community a reliable source of jobs, and various charities a strong ally for their causes. With Samir in his mid-60s, the 16-hour days that had sustained his business and been a part of his identity were beginning to wear on him.  

He had purchased life insurance and intended to transfer the business to his son, who had always been a decent middle manager. But he wanted more confidence that the business he had spent his entire life building would thrive as he sought to move into retirement.  

“What else do I need to do?” Samir asked a trusted advisor.  

The seven-step process  

Samir’s advisor, who was also a certified exit planner, was familiar with the seven-step exit planning process. He laid out the process for Samir to help him determine gaps in his planning. 

  1. Identify objectives, starting with financial security

Samir felt that he was ready to retire, but he hadn’t established any tangible goals. His exit planner recommended that he focus on three big goals to guide his planning.  

First was his financial security goal, which would allow him to transfer his business for enough money to never have to work again. This was his “I need” financial goal, which was the most important goal to achieve.  

Second was his “I want” financial goal, which would position him to transfer his business and receive enough money to fulfill his post-career desires, such as traveling.  

Third were his values-based goals, such as protecting his legacy and continuing his charitable contributions. 

  1. Determine personal and business resources

Once Samir determined what he’d need to achieve financial security and fulfill other goals, he had to figure out whether he had the resources to do so.  

This determination is called assessing the asset gap. The asset gap is the difference between the resources you have and the resources you’ll need to achieve your goals.  

Your assets include personal and business assets, such as investments and business value.  

In Samir’s case, he had a handle on his personal assets, but he was less sure about his business’ value. And he knew that if he stopped working, he wouldn’t have enough to retire on his investments alone. 

  1. Maximize and protect business value

To maximize and protect business value, you’ll first need to know the value of your business.  

Some pitfalls to avoid are using rules of thumb, comparisons to competitors, or your own estimate. These methods can provide incomplete or inaccurate targets, which can have negative effects that resonate throughout your entire plan.  

A professional valuation often yields strong results. Professional valuations are more objective than your personal estimate, which is clouded by your emotional attachment to the business. They can also help you find areas of your business that need strengthening.  

Though professional valuations cost money, think of it as an investment in strengthening your business and therefore your retirement funding.  

Samir found that his business was valuable, but only if he remained after he sold it, since he was the driving force behind its success. This encouraged him to hire next-level managers to take over his responsibilities so he could exit completely when he was ready. 

  1. Transfer to a third party

Though Samir intended to transfer ownership to his son, his advisor team encouraged him to consider what a third-party sale would look like. This would help him understand how much money an unrelated party would pay for his business, helping him set expectations for himself and his son.  

Additionally, preparing for a third-party sale could give Samir two advantages.  

First, the preparations would help strengthen his business. Valuable businesses tend to have common elements, like a strong management team and scalable processes. Installing or enhancing these elements in his business could both improve the business and signal to outside buyers that the business was worth top dollar, since it could run well without Samir at the helm.  

Second, this exercise would act as a safety net if transferring to his son were not doable. For instance, if his son couldn’t run the business well or simply didn’t want to, preparing for a third-party sale would allow Samir to continue forward without scuttling his plans. 

  1. Transfer to an insider

Insider transfers can be profoundly fulfilling when executed well. The challenge, though, is in execution.   

Insiders rarely have the upfront funds to allow owners to achieve their financial goals. This often means that transfers rely on strong long-term performance, loans, and other variables.  

Just because you know and trust an insider doesn’t mean you should leave your future entirely in their hands. Strong planning can help you uncover common blind spots.  

Planning can help you uncover blind spots such as:  

  • Transferring to a family member for less money than you need to achieve financial security  
  • An insider who can’t run the business well in your absence  
  • An insider who doesn’t want to run the business   

Giving successors a financial break is tempting, but doing so could put your future in peril. Likewise, it’s easy to assume that your chosen successor wants to be a business owner and will do a good job, which isn’t always the case.   

It’s crucial to know early in the process whether the insider you intend to transfer your business to is willing and able to lead.  

Samir’s son did want to own the business. But he was a much better personnel manager than operations manager. This meant that Samir needed to fill the gaps by hiring next-level operations managers who would agree to stay with the company as it transitioned to his son’s leadership. 

  1. Plan for business continuity

Many successful businesses rely on the owner to function well. This reliance can be catastrophic if the owner is suddenly unable to run the business.  

Death, incapacitation, divorce, and many other unexpected events can affect an owner’s ability to run the business. To counter these threats, exit plans implement business continuity planning.  

Business continuity plans provide written instructions for how the business should react to a business owner’s sudden absence. From determining who should run the business to establishing processes to transfer ownership, business continuity planning hedges against unexpected issues that could otherwise derail an owner’s exit plan. This could allow the business to survive and even thrive in the owner’s absence. 

  1. Create an estate plan

An estate plan creates a strategy for what happens to your wealth, which may include your business, upon your death or permanent incapacitation. This is especially important to family members who you want to take care of but may not be active in the business.  

We strive to help business owners identify and prioritize their objectives with respect to their businesses, their employees, and their families. If you have questions on this topic, we can help with more information or a referral to another experienced professional. Please feel free to contact us at your convenience.  

Imagine a world where your financial advisor, attorney, accountant, insurance specialist, and property/casualty advisor all worked together, like a board of directors on your behalf. This is the type of Collaborative Advisory Team approach we take in our practice. For many driven entrepreneurs, executives, and high-net-worth individuals, a Collaborative Advisory Team of professionals is the most effective and efficient way to achieve your optimal financial world. At Moneta, we’re reinventing the way you experience wealth management.

The information contained in this article is general in nature and is not legal, tax or financial advice. For information regarding your particular situation, contact an attorney or a tax or financial professional. The information in this newsletter is provided with the understanding that it does not render legal, accounting, tax or financial advice. In specific cases, clients should consult their legal, accounting, tax or financial professional. This article is not intended to give advice or to represent our firm as being qualified to give advice in all areas of professional services. Exit Planning is a discipline that typically requires the collaboration of multiple professional advisors. To the extent that our firm does not have the expertise required on a particular matter, we will always work closely with you to help you gain access to the resources and professional advice that you need. 

This is an opt-in newsletter published by Business Enterprise Institute, Inc., and presented to you by our firm.  We appreciate your interest. 

Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity. 

© 2024 Advisory services offered by Moneta Group Investment Advisors, LLC, 100 South Brentwood Blvd., St. Louis, MO 63105 (“MGIA”), an investment adviser registered with the Securities and Exchange Commission (“SEC”). MGIA is a wholly owned subsidiary of Moneta Group, LLC. Registration as an investment advisor does not imply a certain level of skill or training. The information contained herein is for informational purposes only, is not intended to be comprehensive or exclusive, and is based on materials deemed reliable, but the accuracy of which has not been verified. Examples contained herein are for illustrative purposes only based on generic assumptions. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax, or legal decision. Past performance is not indicative of future returns. You cannot invest directly in an index. All investments are subject to a risk of loss. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. These materials do not take into consideration your personal circumstances, financial or otherwise. Trademarks and copyrights of materials linked herein are the property of their respective owners. 

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements. 

The Chartered Advisor for Senior Living (CASL®) designation is conferred by The American College of Financial Services.
©2020 Business Enterprise Institute, Inc. All rights reserved. 

Additional articles