What is Business Exit Planning?

Business Exit Planning is the process of explicitly defining exit-related objectives for the owner(s) of a business, followed by the design of a comprehensive strategy and road map that considers all personal, business, financial, legal, and taxation aspects of achieving those objectives, usually in the context of planning the leadership succession and continuity of the business.

Engaging in Business Exit Planning should increase your chances of a successful business exit.  It will help you to:

  • Maximize the proceeds of the exit
  • Minimize taxes, hence maximizing the after-tax proceeds of the exit
  • Ensure an orderly transition for the leadership of your company, to a party likely to take the business to the next level
  • Define your post-exit strategies
  • Invest the proceeds of your exit wisely; and
  • Reduce the level of stress and risk in the Business Exit process

Some exit strategies allow you to exit in terms of your personal involvement with the business; some allow you to exit in the financial sense; some allow you to exit in both senses.  Understand your real motivations for owning your business and why you are considering selling it.

There are a number of possible motivations for exit:

  • Retirement. You may feel the need to move on to a different phase of your life, enjoy it more, spend more time with your family, and relax
  • Diminished Passion or Energy: It is unlikely that your business will be successful unless you have the energy and passion to make it a success
  • Your Current or Expected State of Health: If you are in your 50s, 60s or 70s, what kind of condition is your body in?  What are your health risks?
  • Lack of Capital: Every business needs capital to grow
  • Dispute Resolution: A Business Exit is sometimes triggered by various forms of dispute; for example, a divorce may force the sale or being at odds with a partner or shareholder
  • Increase in Risk: Changes in regulations or legislation governing an industry
  • Portfolio Diversification: Wealth planners suggest that no one should have more than 20 percent of their net worth tied up in any single investment.  Typical business owners will often exceed that and will have upwards of 90 percent of their new worth tied up in their business(s)

Learn more by scheduling your free consultation with Covenant Consulting Group!