Defining an “Exit Plan”

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Compass on Map - Defining an Exit PlanBusiness valuation and exit planning are a natural and powerful combination. Because of this, Gryphon is able to assist business owners and their professional advisors in drafting and implementing a successful exit strategy.  This is part-two of a three-part series focusing on looking beyond the numbers by digging deeper into the elements of a successful exit plan.  The following was sourced from an article by Richard Jackim author of The $10 Trillion Opportunity: Designing Successful Exit Strategies for Middle Market Business Owners, published by the Exit Planning Institute.

Key Elements of a Successful Exit Strategy

The purpose of an Exit Plan is to develop a strategic blueprint that lays out a road map allowing business owners to successfully transition to the next phase of their lives.  An exit plan addresses all the business, personal, financial, legal, and tax questions involved in selling a privately-owned business.  Contingencies for illness, burnout, divorce, disability and even the owner’s death should also be addressed.  Its purpose is to maximize the value of the business at the time of exit while minimizing the amount of taxes paid and ensuring that the business owner is able to accomplish all of his or her personal and financial goals in the process.

A comprehensive exit planning strategy includes the following basic components:

  1. Owner’s Goals and Objectives
  2. Business Valuation
  3. Value Driver Analysis
  4. Value Enhancement Opportunities
  5. Exit Options Analysis
  6. Strategic Timing
  7. Tax & Net Proceeds Calculation
  8. Recommendations

By identifying this information, business owners can make informed decisions and are able to:

  • Control how and when they exit
  • Maximize company value in good times and bad
  • Minimize, defer, or eliminate capital gains taxes
  • Select the best exit options and the best timing
  • Ensure they achieve all their business and personal goals
  • Reduce their stress as well as the stress of their employees and families

Conversely, the failure to create a well-defined exit strategy almost guarantees that business owners will:

  • Exit their companies as a result of an unplanned event (i.e., one of the Four D’s: death, disability, divorce or distress) instead of their own volition and terms
  • Undervalue their companies and leave hard-earned wealth on the table
  • Pay too much in taxes
  • Lose control over the process by being reactive rather than proactive
  • Fail to realize all their business and personal goals
  • Suffer unnecessary stress and anxiety

Lack of planning on the seller’s part is the number one reason that private business sales fail or only partially succeed, according to a recent survey.[1]  Despite the importance of exit planning, however, most business owners spend more time planning a family vacation than when and how to exit their businesses.  Read Full Article

[1] PriceWaterhouseCoopers, Whose Business Is It Anyway? Smart Strategies for Ownership Succession, and University of Connecticut Family Business Program, Family Business Survey.

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