In the first article, I summarized our seven-step process to create a successful business exit / transition plan. In this article, I will cover the first two steps in detail.
Step one: Set exit objectives/goals
Many owners do not set exit objectives because it is too emotionally wrenching to contemplate separating themselves from a business they have created, nurtured, lived with, suffered with, brought to maturity and in which they have totally immersed themselves.
Your exit plan should be based on your goals. It is difficult, if not impossible, for any planning professional to engage you in the exit planning process until you are emotionally prepared to begin planning to leave your business.
Where do I start?
The Romans believed “victory loves careful preparation.”
We know that preparation starts with setting achievable goals. However, owners who are emotionally ready to face their departures often do not know what to do or where to begin. This is the point at which the need to set clear, simple exit objectives is paramount.
There are three straightforward exit objectives that, once established, allow owners to cut through a lot of muddled thinking that otherwise bars them from moving forward.
These objectives are:
- Knowing how much longer they want to work in the business before retiring or moving on;
- Determining the annual after-tax income they want during retirement (in today’s dollars); and
- To whom they want to transfer the business: Family? Key employees? Co-owner(s)? An outside third party? Employee stock ownership plan (ESOP)?
No owner can effectively begin planning (or acting in an efficient and coordinated manner) to leave his or her business without establishing each of these objectives.
Many owners set other objectives as well, such as:
- Maintaining family harmony;
- Providing for one or more employees;
- Transferring wealth to family members;
- Getting maximum value for the business;
- Giving to charity;
- Taking the business to the next level with someone else’s money; and
- Living a life of significance.
Remember, your objectives direct all subsequent planning efforts and actions. You are the person primarily responsible for this step, but you do not need to work alone.
Owners do not need to reinvent the exit planning wheel themselves. We have experience in creating and implementing exit plans for owners with varying goals and in a variety of industries.
Step two: Quantify available resources
A universal ownership objective is to secure the income stream that you (the owner) and your family will need to support a future lifestyle.
The following three elements constitute your financial resources:
- Business value;
- Non-business sources of income; and
- Projected business cash flow
A word about business value
Knowing the value of the business is critical to the planning necessary to successfully exit your business, because for most owners, their businesses are their most valuable asset.
Accomplishing financial goals depends on converting that asset to cash. Based on owners’ knowledge of the current value of their businesses, owners and their advisors can determine:
- Whether an owner’s financial objectives can be met at present through a conversion of value to cash;
- How much the business’ value must grow in order to reach the owner’s retirement objectives (this is more common than the preceding point); and
- Whether, and how quickly, they make progress.
Certainly, the decision to sell the business you created and nurtured is an intensely personal one. No one can tell you when to exit your business or what to do with the rest of your life.
Having worked with other owners, we can help guide you through the process of preparing for the biggest financial event of your life.
We can help you consider all of the factors associated with exiting your business and help you complete your exit objectives.
If you would like an illustration of the seven-step path from where you are to your successful exit, please ask us for our exit plan roadmap. And be sure to keep an eye out for part three of this six-part blog series.
OPES Family Advisory's mission is to continually strive to be the premier wealth management provider to our clients. Through our unique wealth management process, we provide our clients with the intellectual framework to make sound financial decisions. We continually work to provide our clients with unparalleled personal service and peace of mind to allow them to dream, plan and prosper.
Dean Trudeau, CFP, OPES Family Advisory founder began his investment and advisory career in 1987 and has held the designation of certified financial planner for more than 20 years.
His impressive career has grown over the years to include principal of Horizon Financial Services, sales manager of Manulife Financial/Manulife Securities and district vice-president of RBC Global Asset Management.
Trudeau has a deep commitment to his field and over the years has been recognized with many industry awards and has been asked to speak at a variety of conferences. Along with a deep commitment to the profession, he believes strongly in working closely with all his clients in aspects of their lives to give them peace of mind.