By Daniel R. Crook, special to Business in Savannah
Business exit strategy planning—also known as business succession planning—is, at its most fundamental level, the integration of a business plan and an estate plan based on the business owner’s objectives. Such planning is best and most efficiently accomplished using a team of professionals, including attorneys (estate, tax, and corporate), a wealth management advisor, a CPA, and a business valuation specialist.
The planning process begins with an exercise in introspection. The business owner should identify the fundamental exit objectives, including (i) the desired exit date or timeframe, (ii) to whom the business owner would like to sell or transfer the business (i.e. family, employees, or a third party), and (iii) the desired sales price, which will directly impact the business owner’s income for retirement. The identified priorities guide the exit plan.
The next step is to determine how to protect and maximize the business’s value until and through the desired exit date. Implementing tax strategies to reduce the tax burden upon a sale, restructuring the business for asset protection and/or marketability purposes, and instituting policies to retain and motivate key employees while preventing future competition are just a few of the typical actions considered during this step. The exit strategy planning team will help identify the value drivers of a business and advise the owner on how to protect and increase the business’s value.
After that, it is time to analyze the business owner’s realistic exit opportunities and select a plan that maximizes value while accomplishing the objectives identified during the first phase. Many companies have marketability issues that need to be addressed years before a sale date, and sales to insiders are often paid off through the cash flow of the business. The early identification of any issues will allow a business owner to maximize exit value and ease of transition.
Focus then shifts to ensuring business continuity and resiliency by creating the structure, mechanisms, and talent to help facilitate the success of the business without the business owner. This accomplishes two objectives: first, it provides some protection that the business owner’s family will receive the value of the business if the owner is unable to continue operating the business; second, it helps prepare for a seamless transition to a new owner, which will help increase the sales price. This step is facilitated through the use of a continuality plan, insurance, buy-sell agreements, and other mechanisms.
The final phase of the process is to integrate the general exit strategy plan with the business owner’s estate plan to create a comprehensive plan that accomplishes the business owner’s long-term objectives. When planned and prepared for in advance, a business owner’s exit options, such as a transfer to a family member, a sale to key employees, or a sale to an outside third party, are easier to accomplish. These steps, with assistance from experienced professionals, create a foundation to support the long-term health and viability of the business, a smooth exit for the owner, and the financial security of the owner and his or her family.