Have you made your exit plan? Because, if not, you might want to. Whether you’ve built your business from point zero, or have taken authority of an established organization, it’s inevitable that a time will come when you have to pass the control to someone else.
This entire process — whether it is about selling the business, passing it to an heir, or simply liquidating it — considering which path to choose is a vital juncture to think about.
Exit plans are essential to secure a business owner’s financial future. Effective exit planning is crucial for business owners but is often overlooked until very late. Each business is as unique and dynamic as its leader, but it’s only fair to understand what you want to do with your business when the time comes around.
Our exit planning advisor understands that there is no “one-size-fits-all” approach here — and that’s how we understand your options, and outline the steps only after that. Because your business is our responsibility!
What is Exit Planning?
An exit plan is a roadmap that points to all transitioning aspects of a business whenever you choose one of the following — retire, sell, or transfer ownership. But, whenever you consider it, make sure you have an answer for questions like these:
- When do you want to sell or exit?
- Whom are you selling or transitioning to?
- Have you thought about the price you are going for?
When you are crafting an exit plan, it is essential you have a plan in mind years before you exit. There are a couple of reasons for that. Even if you don’t have your head wrapped around retirement now, you’ll still require an exit plan to document the contingencies if anything unfortunate occurs — such as death, burnout, ailment, or divorce. If you want clarity, get help from individual tax planning services.
Why Should you have an Exit Plan?
Exit Planning is a key ingredient in your business and it should start as soon as you start running your organization. If you anyhow start your exit plan by the time you’re ready to leave, you might get very limited options including who you can sell to, the value you are going to receive, or the success rate of the transition.
Frankly, your exit plan should be tried and tested for circumstances that are beyond human control. For instance, it should address issues like health changes, key employee departure, livelihood changes, market circumstances and more.
Having an exit plan enables you to move quickly to sell your business if things aren’t favorable anymore. If you don’t have a plan, decide to sell the company – chances are you won’t find a buyer immediately. But, when you have a PLAN, it means you already have a buyer, so you don’t have to wait.
While most business owners understand the importance of an exit strategy, most of them are blank slates when asked what it exactly is.
An exit strategy minimizes losses and maximizes investment profits. It is best to get direct advice from individual tax planning services to interact with the situation better.
What are the Options for Exiting Your Business?
You can exit a business in a number of ways:
- Selling it on the open market
- By negotiating an MBO
- Passing the business to a successor
- Taking the business down
- An acquisition or merger
- Selling the ownership stake to partners or investors
You can Keep it in the Family
When it’s time to exit the business, most business owners try to pass it on to younger family members as a tradition. That being said, it is important to remember to not let this tradition fade away to a point that you somehow pass it on to somebody who is not equipped enough.
Passing down a business can be a very perplexing and contentious task. But, regardless of the fact that you’re passing it on to the family itself, it’s necessary that you consult with accountants, tax and all legal consultants to ensure a smooth transition.
Taking the Business Down
If your business has suffered a loss that cannot be railed back on track or that you’ve no successors, then taking the business down or choosing Member’s Voluntary Liquidation (MVL) might be the best option in hand. Based on the situation, it would be wise to take the business down and return any form of capital to shareholders before you cannot solve the circumstances any longer.
Management Takeover
A management team can take hold of your business, through the:
- Management Buy-outs (MBO): Where the existing management buys the business.
- Management Buy-ins (MBI): A new external takes over management and buys the business.
- A Buy-in Management Buy-out (BIMBO): Both new and existing managers buy the business.
It is important that you navigate an exit strategy right after you start running the business. Get help from corporate tax planning services so you know which direction you’re headed.
Guide to Effective Exit Planning
At the core, exit planning is a preparation for the future of your business. It is a step-by-step guide that helps business owners understand how and when they will have to exit their business. More than that, it also gives them a head start at preparing for the worst-case scenarios as well. But, to get a successful exit plan, you must have a guide.
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Setting Goals
- Your Exit Plan should have a defined goal. What do you want to achieve when you exit? You need to understand where you stand with your business. For instance,
- Do you want to sell your business?
- Do you want to pass it on to family heirs?
- Do you want to liquidate your business?
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Business Valuation
- It is extremely essential to understand your business’ worth in order to have effective exit planning. A detailed insight of Business Valuation will not alone establish a reasonable market price but pinpoint areas of improvement that could elevate business value.
- Ways to maximize profitability
- Be extra careful of contracts
- Cut down debt by selling equipment
- Preserve equity and the working capital
- Take care of tax implications
- Have you considered business valuation? It’s never too late to start. Contact our exit planning advisor and get extensive knowledge about the worth of your business!
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Having a Plan
- Business owners cannot exit successfully within the next decade if they are devoid of a plan. The M&A advisor must coordinate a team endeavor to chart out an Exit Plan that consists of business valuation, keeps room for alternative strategies, a deep analysis of the gaps between the goals and the options, and the right strategy to close gaps.
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Build an Exit Team
- Building an exit team is one of the most important areas of a robust exit strategy. This form of the team should have leadership from each area of the company, and some external individuals, like CPAs, Financial Advisors, and Legal Advisors. Possibly, your Successor should also take part in the exit team as well.
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Have a Clear Discussion of the Exit with Employees
- It is very essential that you communicate efficiently with your employees throughout the procedure. It’s equally important to converse with them regularly to ensure they understand the change and how they are going to be impacted by it. It is best to avoid any type of surprise with employees and be transparent with them.
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Prepare for Transition
- When you are preparing for transition, it is important to make your business as attractive as possible to get in touch with active buyers. This includes enhancing financial performances, boosting customer relationships, resolving outstanding legal problems, and investing in key employees.
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Succession Planning is Vital
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- If your current goal is to pass the business to a successor, you are going to need to recognize the person who is going to take the responsibility up and create a core plan for them. This is to train them for the upcoming position.
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Think about Contingency Plan
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- An effective exit strategy only comes to the surface if you start preparing for unexpected turns as well. It can be an unsolicited buy-out offer or personal havoc, so having a. Contingency Plan is going to revisit that your business can face any situation!
Bottom Line
Exit planning is a key side of owning a business. While the process might seem a little scary, you should note that you don’t have to do it alone. As years have passed, we have consistently worked with founders and business owners to ensure they have exit planning. With the right plan and team in place, you’ll be well-equipped to secure the future of your business and achieve your exit goals!
