Navigating Business Exit Planning: A High-Level Overview
Authored by Eric Van Der Hyde, CFP®, RICP®, CEPA®, ChFC®
As a business owner, you've poured your heart and soul into building a successful company. But have you considered what happens when it's time to step away? Business exit planning is crucial for ensuring your hard-earned legacy continues to thrive. This blog post will provide a high-level overview of the key components of a successful business exit strategy and will challenge you to reframe how you think about exit planning.
Understanding Business Exit Planning
Business exit planning involves preparing for the eventual transition of your business to new ownership. Contrary to what many believe, however, exit planning is not just about finding a successor for those looking to exit their business in the near future. As the Exit Planning Institute® explains, exit planning is a business strategy – focused on aligning your business, personal, and financial goals to maximize value and ultimately create a seamless transition when you are ready.
The Value Acceleration Methodology
Developed by the Exit Planning Institute®, one of the most effective approaches to business exit planning is the Value Acceleration Methodology. This strategic framework integrates business strategy with personal and financial goals, preparing owners for an exit at any time. The methodology is divided into three phases:
- Discover Establishes a baseline measurement of business value through business valuation, readiness assessment, and creation of a prioritized action plan.
- Prepare: Focuses on executing action items to build value, mitigate risks, and strengthen intangible capitals (Human, Customer, Structural, and Social).
- Decide: Allows owners to decide whether to continue growing their business (by continuing on the value acceleration path) or exit and realize the wealth they’ve built in the business.
Key Components of Exit Planning
To successfully transition your business, you must address three main areas:
- Building Business Value: Focus on maximizing transferable business value rather than just business income. This involves understanding your business's strengths and weaknesses and creating a strategic plan to grow its value.
- Personal Goals: Align your personal goals with your business and financial targets. This helps ensure a smooth transition and prevents identity crises post-exit.
- Financial Planning: Prepare financially for a lifestyle without the income from your business. This includes understanding your retirement needs, risk profile, and long-term health considerations.
Exit Options
When it comes to exiting your business, there are several options to consider:
- Family Transition: Transitioning the business to family members can be cost-effective but may involve managing family dynamics.
- Employee Stock Ownership Plans (ESOP): ESOPs offer flexibility and tax efficiency, allowing owners to sell any portion of their stock to employees.
- Selling to Third Parties: Selling to strategic buyers, financial buyers, or private equity groups can provide a quick exit with more cash up front.
- Advanced Value Acceleration: For those who choose to continue growing their business, advanced strategies like expanding to new markets, developing new products, or acquiring other businesses can be pursued.
Conclusion
Business exit planning is essential for ensuring the longevity and success of your company. By integrating the Value Acceleration Methodology and addressing key components like business value, personal goals, and financial planning, you can create a seamless transition that benefits both you and your business.
Ready to take the next step in your business exit planning journey? Reach out to us to learn more about how we can help you navigate this critical process and help you build a team of credentialed advisors to work on your behalf and help ensure a successful transition for your business.
