Return on investment is important to every business owner. It is inevitable that your business will change hands at some point; no one is immortal after all. Your intention and hope is that this transition will be on your terms and your timeline, but what is wealth if you can’t transfer it? What is your wealth even worth in real, after-tax dollars?
Discussing the process of “exit” planning, succession, or transitioning evokes personal emotions on multiple levels. In my experience, business owners would often times prefer no one know they are planning to exit, have more urgent priorities, or just do not want to leave. As your business grows, so will its complexity. Because business value is not liquid, you, as the owner, may end up exiting later than expected because you miscalculated your required planning.
What is an exit plan? Richard Jackim, the co-author of The $10 Trillion Opportunity and co-founder of Exit Planning Institute believes “an exit plan asks and answers all the business, personal, financial, legal and tax questions involved in transitioning a privately owned business”. It should even include contingencies that aren’t always on your radar, such as illness, burnout, divorce, death, disabilities, and disagreements. The purpose of an exit plan is to help maximize the business value at the time of exit, minimize the number of taxes paid, and ensure you are able to accomplish your personal and financial goals in the process. No, exit planning is not a plan, a valuation report, or a concept. Instead, as Patrick Ungashick, author of Dance in the End Zone: The Business Owner’s Exit Planning Playbook, puts it, exit planning is “the conscious effort to grow your business in a manner that efficiently converts ownership into personal financial freedom and peace of mind.”
Unlocking new opportunities may mean a shift in your way of thinking. Change the irrelevant timing of your transition to a defined, flexible business strategy – it’s not about the “right time” anymore.
A good exit plan should present you and your team with an objective analysis of all exit options to help you make an informed decision. Realistically, it must help identify the pros, cons, and costs of each option as it relates to your own personal values, goals, and objectives. This includes protecting your stakeholders, key employees, and family.
No exit plan is complete without addressing your key question: “How much will I need to net, after a sale or transition, in order to accomplish my goals?” Though a small part within the entire exit planning process, estate planning is key. When estate expertise and financial planning are included within the overall process, the comprehensive wealth, estate and exit plans are more effective.
Does this information reflect your current financial plan, estate plan, tax plan, and business valuation 3 to 4 years before your liquidity event takes place? A variety of multidisciplinary skills are necessary to design a thorough and integrated plan for business owners and companies with enterprise values exceeding $5 million. A-Teams includes a business attorney with merger and acquisitions experience, a wealth manager with thorough financial planning expertise, a business tax specialist, an insurance professional, and an investment banking firm specializing in exit planning. Other professionals may also be involved.
History has shown that a business owner who sells their business without an exit plan typically sells it for too little. Worse yet, if nothing is done and your business is sold after its owner dies, its value usually drops dramatically and becomes a burden to your family. Preparation is the key to maximizing your return on your investment – procrastination is not your friend.
Syndie Levien is a Financial Advisor with UBS Financial Services Inc., 3801 PGA Boulevard, Suite 1000 Palm Beach Gardens, FL 33410. Any information presented is general in nature and not intended to provide individually tailored investment advice. Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of UBS Financial Services Inc. Neither UBS Financial Services Inc. nor any of its employees provide tax or legal advice. You should consult with your personal tax or legal advisor regarding your personal circumstances.
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