ClearCourse Consulting, Inc.

 

What is Exit Planning?
Often referred to as business succession planning, it is the development of a strategy and a road map that enables the business owner to leave their business on their terms.

Why you need it?
At some point, every business owner will leave their business. The average business owner has 75% of their net worth tied up in their business and 80% of businesses are not saleable today for what the business owner expects. The transition out of the business will be the most significant financial event of their lives. Preparing your business for sale can be a hectic affair with few options, triggered by an unplanned event and constrained by time. This typically leads to many unpleasant tradeoffs and a result that falls far short of the owner's objectives. The alternative is a systematic approached initiated 3-10 years in advance and driven entirely by your exit objectives.

When should you start?
The short answer - three to ten years before your planned exit.

Owners begin thinking about the Exit Planning process when two streams of thought begin to converge. The first stream is a feeling that you want to do something besides go to work every day - either you would like to be someplace else - doing something else - or you simply no longer get the same kick out of doing what you are doing.

The second stream is the general awareness that you are either approaching financial independence, or making significant strides toward reaching that goal, or can achieve financial independence by selling your business. When these two streams converge, thoughts flow inevitably towards exiting the business. Hopefully, when that happens, your Exit Plan is in place and you are actually able to leave the business when you want to. That, in a nutshell, is the purpose of Exit Planning - to leave your business on your terms and on your schedule

What is the process?
Our process follows the BEI Seven Step Exit Planning Model. The goal is to develop a plan that will help you transition out of your business on your own terms so that you can leave when you want, for maximum value and minimize that tax consequences of the sale. Proper knowledge and preparation can possibly mean millions of dollars to you when you ultimately leave your company.

The seven step exit planning process is summarized as follows:

Step 1: Exit Objectives.
Have you determined your primary planning objectives in leaving the business, such as:

1. Your desired departure date?
     2. The income you need to achieve your financial objectives?
     3. The person to whom you want to leave the business?
 

Benefits to the Owner

Clarifies priorities

Facilitates progress by identifying a desired outcome

Focuses energy on most urgent concerns


Step 2: Valuation and Cash Flow.
Do you know how much your business is worth? Do you know what the business's future cash flow is likely to be after you leave it?
 

Benefits to the Owner

Provides a baseline value by projecting cash flow.
Measures business and personal resources both today and as a basis for future projections.
Allows you to monitor progress toward the stated objectives.
 

Step 3: Making the Business More Valuable.
Do you know how to increase the value of your ownership interest?

Benefits to the Owner

Grow business value and intangible value of the business.
Reduce income taxes upon sale of business.
Protect assets from potential business and personal creditors.
Create ability to sell the business.
Motivate and keep Key Employees.


Step 4: Sale to Third Party.
Do you know how to sell your business to a third party in a way that will maximize your cash and minimize your tax liability?

Benefits to the Owner

Cash at closing.
Eliminate financial risk.
No family succession issues.
Speed of exit.


Step 5: Transfer to insiders.
Do you know how to transfer your business to family members, co-owners or employees while paying the least possible taxes, reducing risk and accomplishing your financial goals?

Benefits to the Owner

Achieves Exit Objective of:
Selling to Key Employee Group (KEG).
Transferring to a Child.
Motivates and retains key employees.
Planning reduces risk and increases amount of money received.


Step 6: Business continuity upon death or disability.
Have you implemented all necessary steps to ensure that the business continues if you don't?

Benefits to the Owner

Objectives can still be achieved if you don’t survive your exit.
Retains ownership and control of company if co-owner departs.
Can force non-contributing owners to leave the business.
Provides consistency between lifetime and death objectives.
Ensures survival of the business for the benefit of others.
Results in family receiving value of owner’s interest, in cash.


Step 7: Wealth Preservation Plan.
Have you provided for your family's financial well-being and continuity should you die or become incapacitated?

Benefits to the Owner

Preserve wealth, minimize taxes using both lifetime and death planning tools.
Coordinates and integrates lifetime exit objectives wishes with estate plan

We work with clients in Pittsburgh, Western Pennsylvania, and throughout the country. We have a team of advisors based in Pittsburgh including attorneys, insurance advisors, CPA's, bankers, valuation specialists, business brokers and investment bankers who can fill any gaps in your current advisor team to make sure your exit objectives are met.

Rick Tifone is a Certified Exit Planner (CExP).


Would you like to learn more about Exit Planning?  Here are some options:

Subscribe to The Exit Planning Review a twice monthly newsletter devoted to the topic of Exit Planning.

View a sample newsletter

Subscribe to The Exit Planning Review

Contact us to set up a phone or in person meeting

 

 

Exit
Planning

Turning business goals into reality
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