Exit Planning Strategies

By HunterMaclean Attorneys, Special to Business in Savannah

Most business owners have not sufficiently planned what may be the single most significant financial event of their lives – the exit from their business.

The reality is that every business owner will eventually exit their business. Exit strategy planning allows the business owner to maximize the after tax value received for the business, transition under his timeframe, and ensure the financial security of his family and trusted employees.

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 an attorney (estate, tax and corporate), a wealth management advisor, a CPA and a business valuation specialist.

The first step in the planning process is for the business owner to identify her exit objectives, including to whom the business owner would like to sell or transfer the business (i.e. family, employees, or a third party), the desired exit date or timeframe, and required income for retirement.  This process is introspective for a business owner, and the identified priorities guide the exit plan.

The second step is to determine how to protect and maximize the business’ value until the desired exit date.  The exit strategy planning team will help identify the value drivers of a business and advise the owner on how to protect and increase its value.  This is accomplished by 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.

The third step involves analyzing the business owner’s realistic exit opportunities and selecting a plan that maximizes value while accomplishing the objectives identified in step one.  Each exit option, such as a transfer to a family member, a sale to key employees, or a sale to an outside third party, is most easily accomplished when planned years in advance.  For example, many companies have marketability issues that need to be addressed years before a sale date, and sales to insiders are often paid through the cash flow of the business.  The early identification of issues will allow a business owner to maximize exit value and ease of transition.

The fourth step is to ensure business continuity and resiliency by creating the structure, mechanisms and talent to help facilitate the success of the business if the business owner does not survive until the planned exit date.  The goal is to ensure the business owner’s family will receive the value of the business if the owner is unable to continue operating the business through the use of a continuality plan, insurance, buy-sell agreements and other mechanisms.

The final step is to integrate the exit strategy plan with the business owner’s estate plan to create a comprehensive plan that accomplishes the business owner’s long-term objectives for himself and his family.  These five 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 family.