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The 7-Step Exit Planning Process

The 7-step process is flexible and dynamic. The steps do not necessarily have to be addressed in the following sequence, and more than one may be in progress at a given time.


The Foundation: Establish Goals and Quantify Resources

.Step 1: Business Owner Establishes Exit Goals

  • Departure Date: the date on which owner wants to leave the business (anything from an immediate departure to an "until death do us part" plan).

  • Financial Goal: the amount of cash the owner needs, at the time of departure, to support the desired post-business lifestyle for the rest of the owner's (and spouse's) life.

  • Successor(s): Owner's choice(s) for successor owners and managers, i.e., child, key employee, or outside buyer.


Step 2: Business and Personal Financial Resources and Gap Analysis

  • Quantify business and personal assets.

  • Determine whether or not assets are sufficient to satisfy the owner's financial goal.

  • If there is a gap, it must be filled through growth in business value and cash flow for the owner to exit on own terms (established in Step 1).

The Straws that Stir the Drink: Business Cash Flow and Value

Step 3: Maximizing and Protecting Business Value

  • Focus on business characteristics that have been proven to contribute to the growth and preservation of business value ("Value Drivers"), such as:

    • Stable, motivated management team;

    • Solid, diversified customer/client base;

    • Realistic growth strategy;

    • Operating systems that improve sustainability of cash flows;

    • Good and improving cash flow;

    • Effective financial controls.

  • Value Drivers are particularly important when business value is insufficient to fill a gap between (i) the amount an owner needs for desired post-business lifestyle (established in Step 1), and (ii) the value of the owner's other assets.

The Main Event

Step 4: Ownership Transfers to Third Parties

  • Determine if the business is likely to attract third-party buyers.

  • Prepare the owner for the sale process, e.g. letter of intent, non-disclosure agreement, due diligence, negotiations, anticipated professional fees, and other costs.

  • Prepare the business for sale.

  • Work with investment banker, intermediary, or business broker; employing "controlled auction" strategy, if possible.

  • Work with owner's professional advisors to structure the sale transaction, including tax, business, and personal goals and issues.


Step 5: Ownership Transfers to Insiders

  • Fundamental Challenge: Typically, an owner's children, co-owners, or key employees (collectively "insiders") don't have, and cannot borrow, much money.

  • Planning for an insider transfer takes time and works best when the owner stays with the company for several years, allowing time to:

    • Accumulate the necessary cash through Value Driver Planning and other business strategies;

    • Deploy tax minimization strategies for the owner, as well as the purchasing insiders, to enable them to pay the owner in a manner that they - and the business - can afford;

    • Transfer management responsibility in an orderly fashion so that successors are ready to step into their new roles

    • Minimize risk by ensuring that owner maintains control until financial goal is met.


Preserving the Legacy

Step 6: Business Continuity

  • Here, we seek to protect the owner and successor(s) in the event that the planned transition is derailed by the death or disability of the owner or successor(s).

  • Tools can include:

    • Written continuity instructions (to include designating individuals to assume specified authority and responsibility);

    • Buy-sell agreement;

    • Life disability, and key person insurance;

    • Arrangements with banks regarding personal guaranties and continuing credit; and

    • "Stay Bonuses" for key employees so that they will remain with the business for a specified time following the owner's death or disability.

Step 7: Personal Wealth and Estate Planning

  • The business usually represents the greatest portion of the owner's net worth and income.

  • Personal wealth and estate planning:

    • Provides financial, legal, tax, and asset protection benefits;

    • Focuses on protecting personal assets and managing wealth for the present, the future, and upon death;

    • Considers personal goals and values, including family harmony and fairness to all children.


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The Exit Planning Review© is a twice monthly e-newsletter for business owners and their advisors. Each issue discusses a topic affecting business owners who must plan for likely the single most important financial event of their lives - the transition out of their business.

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