Exit Planning refers to the process of helping the business owner(s) leave or exit the business and ensures that a successful transition of ownership will transpire in a timely, efficient and effective manner. The goal in most cases is to maximise the financial returns to the business owner, however in cases of family succession this may be secondary.
Two types of plans need to be prepared in order for a business owner to successfully leave or exit the business
Personal Goals & Action Plans
The personal goals of the business owner(s) must be taken into account and plans must be made to ensure that “life after transition” goes smoothly.
Personal financial planning and tax planning will need to be considered to ensure the maximum net proceeds and transfer of wealth.
Business Goals & Action Plans
The business value of the enterprise needs to be maximised prior to the transition. This will ensure that the business owner(s) receive the maximum return on their investment.
Plans must be put in place to transfer the management roles and responsibilities that were previously performed by the business owner(s). (Management succession).
If a management succession plan is considered at least 12-36 months prior to selling then it is likely that internal structures will lower the risk of failure of a new business owner. This will ultimately increase the value of the business.
Why prepare an Exit Plan
Why would you prepare an “Exit, Succession or Business Owner Retirement” Strategic Plan for your business.
No matter how much you enjoy working in your business, inevitably there will come a time when you will need to retire or sell your business.
A business owner can retire in several ways. Each has implications, not only for you as the owner, but for the business and the business adviser.
An Exit & Succession plan will help you to consider a variety of different options before you make the final decision. In order to retire from the business the business owner can choose to:
- sell the business
- transfer ownership and control of the business to family members
- allow the business to cease – particularly if the business is small and closely tied to the owner’s personal involvement
- retire from active involvement (or scale down involvement) by taking a new partner or appoint a manager.
- allow existing partners or family to run the business and maintain a passive involvement
Each option has its merits and drawbacks. However it is essential that any decision regarding retirement be made early so that death or infirmity does not force an unfortunate decision on the owner or the owner’s family.
Most business owners are only concerned with selling their business to a third party. Therefore the primary driver for preparing an Exit Plan is to maximise the value of the business in this sales process.
To ensure you get the best price for your business if you decide to sell, you need to start planning for such a sale well in advance. You also need to consider the issues that could cause you problems.
Common problems at the start of the process.
- Many business owners feel their business is worth more than is justified by the marketplace
- Many business owners books and records may fail to reflect the true worth of the business
- Many business owners have backdated compliance and financial statements
- Some business owners have little systems and processes in place
- Most business owners have never reviewed their business from an “attractiveness to a buyer” perspective so there are fundamental problems that will drag the value down
For more information on exit / succession planning please contact Kevin@vincentconsulting.co.nz for a no obligation free initial consultation.