WHAT IS AN EXIT PLAN?
An exit plan is a comprehensive road map to successfully exit a privately held business. An exit plan asks and answers all the business, personal, financial, legal, and tax questions involved in selling a privately owned business. It includes contingencies for illness, burnout, divorce, and even the owner’s death. Its’ purpose is to maximize the value of the business at the time of exit, minimize the amount of taxes paid, and ensure that the business owner is able to accomplish all his or her personal and financial goals in the process.
An exit plan can be complex and usually requires advice from a number of different specialties. A well-designed and implemented exit plan enables business owners to:
- Control how and when they exit
- Maximize company value in good times and bad
- Minimize, defer, or eliminate capital gains taxes
- Retain control by generating a number of strategic exit options
- Ensure they achieve all their business and personal goals
- Reduce their stress and that of their employees and families
- Ensure continuity of the business
On the other hand, the failure to create a well-defined exit plan virtually guarantees that business owners will:
- Exit their companies as a result of pressure from outside circumstances, not as a result of their own desires
- Exit their companies on a timetable that’s forced on them instead of one that meets their needs
- Undervalue their companies and leave hard-earned wealth on the table
- Pay too much in taxes
- Lose control over the process by being reactive and limiting their exit options
- Fail to realize all their business and personal goals
- Suffer unnecessary psychological stress
- Watch a lifetime of work disintegrate as a result of poor business continuity planning
- Lose confidentiality during the sale or exit process
A recent survey showed the number one reason private business sales fail or only partially succeed is a lack of planning on the seller’s part.
However, in spite of the importance of exit planning, most business owners spend more time planning a family vacation, than when and how to exit their businesses.