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Frequently Asked Questions

1. What is Exit Planning?

  • Exit Planning is the creation and execution of a customized strategy allowing owners to ext their businesses:

✓ On the date they choose;

✓ With the amount of cash needed for their chosen post-business lifestyle;

✓ With their desired successor owner(s) in place; and

✓ Having achieved their value-based goals, e.g. keeping the business in the community, rewarding employees who helped build the company;

✓ Minimizing tax and other risks that could affect the transfer.


  • The Exit Planning Process incorporates the work of a team of professional advisors ("Advisor Team") led and facilitated by an Exit Planning Advisor, or "Exit Planner." (see FAQs #8). Read more about the 7-Step Exit Planning Process.


2. Will my exit plan be stated in a document?

  • Yes, a comprehensive written Exit Plan will:

✓ Provide a detailed written strategy for accomplishing your transition objectives;

✓ Provide specific recommendations for each step of the Exit Planning Process;

✓ Include an "Action Item Checklist" that the Exit Planner maintains to track the tasks necessary to complete each Exit Plan component, including the responsible person and the due date for the task;

✓ Be amended and updated as the process proceeds to incorporate new or updated information and recommendations.


3. What is the Exit Planner's role?

  • The Exit Planner:

✓ Gathers information;

✓ Advises and makes recommendations to the owner;

✓ Manages the Exit Planning Process;

✓ Drafts and updates the Exit Plan, including the "Action Item Checklist;"

✓ Assembles, leads, and manages the Advisor Team, assuring that they have the information they need, holding them accountable for their commitments, and offering recommendations to them;

✓ Synthesizes all data, issues, and professional advisors' recommendations so that the owner can focus on exit planning decisions and continue to operate the business.


4. Who would be on an Exit Planning Professional Advisors Team?

  • The size and composition of exit planning Advisor Teams depend upon the owner's needs. Typically included are a CPA, business attorney, estate planning attorney, financial planner, insurance professional, and a business appraiser. Others who may be included are a business broker or investment banker, management consultant, or private banker.

  • Typically, I would serve as both the Exit Planner and Business Attorney.


5. Can I work with my current advisors? Why do I also need an Exit Planner?

  • Your current advisors can be valuable members of the team. Their familiarity with your business and personal affairs, and the confidence you already have in them, can be an asset to the process. But, while they possess powerful core skills, most of them aren't trained to bring a "big picture" perspective. That's where the Exit Planner comes in.


  • If you don't already have an advisor from a particular profession, or one of your current advisors is unavailable or lacks knowledge about a technical issue, I can introduce you to seasoned practitioners from each relevant discipline. Advisor Team members will be selected and retained by you. I am happy to work with the advisors of your choice.


6. How does Exit Planning differ from Business Succession Planning for a family-owned business?

  • The term most often associated with inter-generational transitions of family-owned businesses is "business succession planning" - the process of identifying, preparing, and transitioning members of the next generation into their new roles. Its focus must necessarily include family issues, e.g., fairness to all children and management of conflicts within the family.


  • Exit planning is primarily for and about the current owner, who will be departing or reducing involvement in the family business. Because the Exit Plan is an integral part of the succession plan, the owner has peace of mind, knowing that his/her welfare will not be "lost in the shuffle."


7. Why can't Exit Planning wait until I'm ready to leave my business or until I can sell it for the amount I need or want for financial security?

The real question is, "How long before I plan to leave my business should I begin Exit Planning?" The owner who delays exit planning is likely to be left with a choice between (i) delaying departure to grow business value or (ii) departing with less cash than the amount needed or desired for financial security.

8. How soon is soon enough?

Here are the typical tasks for an exit on an owner's own terms.


  • All Owners

✓ Creating the Exit Plan. This can be expected to take 6 to 12 months. If the plan is created more quickly, there's a danger that complex decisions will be rushed.

✓ Closing the gap. There's typically a gap between current business value and the amount needed to achieve the owner's financial goal. The length of time it takes to close the gap (see FAQs #9, Value Drivers) depends on factors such as the gap's size and the capital available to drive growth. Five years or more is not unusual.


  • Owners Who Intend to Transfer to a Child or Key Employee

✓ Tax planning and implementation. An essential part of Exit Planning is minimizing or eliminating taxes on the transfer and saving on annual income taxes. It can take three to ten years to fully implement tax-saving strategies, such as incrementally transferring a business to children or key employees.

✓ Transferring the business to children or employes. It takes three to ten years to transfer ownership to children or employees in an incremental manner that also achieves the owner's objectives. This allows time for the (i) owner to receive income from S or LLC distributions as a result of the growth in value and cash flow; (ii) incoming owners to acquire the skills and experience to manage the business without the owner's involvement; (iii) value of the remaining ownership interest to increase; and (iv) child or key employee to obtain equity in the business that will serve as security for bank funding needed to pay for the owner's remaining interest. During this incremental transfer period, the owner retains control of the business.


  • Owners who Intend to Sell to an Outside Buyer

✓ If the owner's advisors conclude that the business is prepared for transfer for the price the owner needs, they should review the company's structure, records, and operations to uncover and remedy anything that could delay or derail negotiations. This process, called pre-sale planning, typically takes a few months but can run significantly longer if problems are discovered and must be remedied. Once all problems have been handled, the sale process begins and is usually complete within a year.

  • If advisors determine that the business is unlikely to bring the desired price, the gap must be closed by implementing previously identified "vale drivers." It's not unusual for this process to take five years or longer, depending on the size of the gap. Outside factors that may influence the timeframe for a third-party sale include inability to identify a qualified buyer, unfavorable M&A market, competition from a "big box" competitor, unfavorable industry changes or a declining economy.


9. What are Value Drivers?

Value Drivers are characteristics that have been proven to contribute to the growth and preservation of business value. They can be deployed when it is necessary to close a gap between current business value and the amount needed to achieve the owner's financial goal. The following are examples of Value Drivers:

  • Stable, motivated management team;

  • Realistic growth strategy;

  • Solid, diversified client base;

  • Operating systems that improve sustainability of cash flows;

  • Good and improving cash flow;

  • Effective Financial Controls.


10. What will happen once my Exit Plan has been completed?

  • For a separate fee, I will manage implementation of your exit plan to allow you to do what you do best - run your business. Typically, the fee for this service is substantially less than the exit planning engagement fee.


11. What if things change - tax laws or maybe a divorce - while you're handling my plan?

  • Your Exit Plan is dynamic, living document. If circumstances change while creating your plan, we'll contact the responsible advisor and make necessary alterations. Once completed, I suggest a yearly review to keep the plan current.


12. I don't plan to ever depart my business. Why do I need "exit" planning?

  • You can remain active in your business as long as, and to the extent, you wish.


  • However, you still need an exit plan because:

✓ Someday you will leave the business;

✓ You care about your family, your business, employees, reputation, and legacy.

✓ You may change your mind, or future circumstances may compel you to exit.


  • Whenever you depart, your business must be prepared for transfer. A critical element of such preparedness is that the business must not be dependent upon you. This is unlikely unless the actions necessary to prepare the business have begun well before your departure date. An unprepared business will not attract an outside buyer, nor will its employees be able to run it. If you change your mind and decide to leave the business, you may be faced with reducing your financial expectations or delaying your exit in order to grow business value. If your departure is involuntary, your heirs or personal representative will have few, if any, options.


13. If I establish a departure date, will I be bound to it even if when it comes, I don't want to leave?

  • The departure date you established in Step 1 of the 7-Step Exit Planning Process is the goal most likely to change. Owners may decide that they're simply not ready to depart, or they may need to stay in order to grow business value and cash flow to the levels necessary to meet their financial goal.


14. What are some of the most common "minefields" to avoid when planning my business exit?

  • Avoid false assumptions such as:

✓ Overestimating the value of the company;

✓ Overestimating the rate at which business value and cash flow will grow;

✓ Underestimating the number of years you (and your spouse) will live after you depart the company;

✓ Underestimating the income you'll need to sustain a comfortable retirement;

✓ Overestimating the likely return on your invested assets;

✓ Overestimating the after-tax proceeds from sale/transfer of the company.


  • Perhaps the most serious consequence of making false assumptions is that they can lull owners into a sense of complacency which causes them to delay planning.


15. What additional challenges should I be aware of?

  • Today's market environment makes it likely that exiting a business successfully will take substantially longer than it did prior to the Great Recession: As the baby boomers continue to retire there will be many more businesses for sale than qualified buyers.


  • It is unlikely that either the economy or returns on investment of business sale proceeds will approach their pre-2007 levels in the foreseeable future.


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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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