to Exit Planning
Exit Planning Review:
First Things First
"You've got to be very careful if you don't know where you're going, because you might not get there." — Yogi Berra
is not always easy to interpret the Great Yogi. In this case, perhaps he is
advising you to figure out just where you are headed in your business.
As you near the time when you will leave behind the daily worries and
stresses of business ownership, have you defined your successful exit?
Do you know where “there” is, much less how to get there? Unless you
set and prioritize your exit goals or objectives, you may have too many,
or they might conflict, but in either case you may not make much
The clearest example of a failure to set objectives may be Bill
Wilson (not his real name), a business owner who recently told us that
- To leave his business within three years, but he was ready to leave today;
- Financial security, defined as a seamless continuation of his current lifestyle; and
- To transfer the business to his key employees.
A quick review of Bill's personal financial statement, however,
revealed that most of the income required to maintain his lifestyle
would have to come from the business. Unfortunately, his business wasn’t
large enough to attract a cash buyer. And, since Bill had done no exit
planning, his employees had no funds with which to purchase his
ownership interest. A long term installment note seemed to be the only
answer — a risk Bill was unwilling to take.
Contrast this unpalatable solution with Bill's objectives —
objectives which could have been achieved had he taken the time (well
before he wanted to leave the business) to establish and to prioritize
his exit objectives.
If, for example, an owner’s need for financial security prevails,
selling a business to a third party for cash may be the best and
quickest exit path.
If, however, attracting a qualified third party is unlikely, an
owner may need more time to devise and to implement a transfer to an
insider (child or employee) that provides the owner adequate cash.
On the other hand, if an owner’s desire to transfer the business
to a specific person or group trumps his or her need for financial
security, and his/her deadline for departure draws near, financial
security in the form of "up-front" cash must take a backseat.
As you can see, owners must consider—simultaneously—the three
primary exit goals (listed below). Ask yourself which is your most
important exit objective and rank your answers from 1 (most important)
to 3 (least important).
- Financial security - 1 2 3
- Transferring the business to the person of my choice (may be key employees, co-owner or child) - 1 2 3
- Leaving the business when I want (could be immediately or never) - 1 2 3
Prioritizing your objectives will help you choose your overall path.
For example, if you want out — soon and with cas h— but your business cannot
be sold today, do you wait until market conditions improve or sell now
to your employees? While prioritizing your objectives is not easy, doing
so gives you a framework to decision making.
We suggest that you print this issue of The Exit Planning Review™ so you can complete the rankings above and share this information with
members of your Advisor Team. We encourage you to contact us as you
work through these decisions. With fresh eyes and experience with other
owners we can help you to balance these competing objectives.
Future issues of The Exit Planning Review™ will provide
unbiased and advertising-free information about all aspects of exit
planning. We have newsletter articles and detailed White Papers related
to this and other Exit Planning topics. If you have any questions or
want additional Exit Planning information, please contact Tod Arbutina or John "Jack" Ellsworth.