Prepared for Your Exit?
[fname], what do you really want from your business exit?
As an exiting business owner, you likely do not adhere to the outdated model
of 'sell my business. .invest the proceeds . . . retire'. There are far
greater concerns that go into a properly planned exit strategy than simply
the sale of the business and the 'leap off the cliff' into retirement.
In fact, many exiting owners want to know their options for exiting
their business. There are many options for a business exit – other than
selling the business – but an exiting owner first needs to know their own
financial readiness for the exit. Without knowing your personal financial
situation, it is impossible to examine options for your business exit. The
reason is that not all options have the same probability of success. And a
failed exit can be costly.
What Do You Want?
Have you taken time to consider what it is you really want from your
business exit strategy? Or does the business of running your business
prevent you from doing so?
Set aside time to reflect on why you started your business and what you
would like to ultimately get from it. Your life's work is wrapped in your
business. How you exit it is an essential piece of your overall life and
Have You Saved
Enough to Make Your Exit a Reality?
The single greatest determinant in assessing your exit options is your
personal financial readiness for your business exit.
Questions to ask to get
How much have I personally saved – outside of the business –
to prepare myself for the exit that I am considering?
What is my business worth if I exit according to my current plan?
At the closing, will I know the tax impact to the check that I am
At the closing, will I know the advisory fees that I need to pay?
What amount of investable assets would I be comfortable with in my
account to support my post-exit lifestyle?
How much risk do I want to take with those investable assets to
generate a return that will satisfy my post-exit lifestyle?
High or Low Financial Readiness
An exiting owner who has saved diligently and has amassed personal savings
(and retirement savings) accounts that can satisfy their post-exit lifestyle
has a High financial readiness for a business exit.
On the other hand, an exiting owner who has put most of the profits of the
business back into running and growing the business will have little saved
on a personal level and will have a Low financial readiness for a
An owner with a High financial readiness has many options available to them
for an exit strategy plan. Internal transfers can be considered because the
exiting owner is financially stable and can afford the exit of her choice.
This exit may include a transfer to family, key employees, or even co-owners
in the business. Because this exiting owner can withstand a lower value – or
even a contingent receipt of proceeds from the exit – these options become
available and can be considered.
It may well turn out that a successful internal transfer yields more
after-tax, after-fee proceeds to an exiting owner. In addition, the exiting
owner can depart from the business over a number of years in a controlled
manner. These attributes are generally not available in the Sale of a
Low Financial Readiness
The exiting owner who has not saved money outside of the business will have
most of their net worth tied up in the business. In order to 'realize' this
wealth, the business likely needs to be sold to a buyer for the highest
price. In this case, the exiting owner needs to get the highest price to
supplement their modest level of savings on the personal side. Here, a
controlled and phased exit is unlikely available as an option.
Alternatively, what is also likely available is a 'stay and grow' approach
towards the future business exit. In this case, the exiting owner is
matching the growth objectives for the business with their personal exit
strategy planning goals and setting the intention of 'growing the business
into their exit'.
This simply means that the exiting owner will either establish more vehicles
for personal savings over the years leading up to the eventual exit, or this
owner will grow the business to a value where it can be sold for a price
that will meet the owner's future post-exit lifestyle. In either case, this
exiting owner will likely have fewer exit options available to them today.
Start Your Planning Today
Whether you have been a very good saver on the personal side, or whether you
need to plan for a future exit at a higher value, you should begin
establishing your exit strategy plan today. In doing so, you are making a
plan for the protection of your wealth and you will make adjustments to your
business as you begin moving forward with your plan.
Remember that your 'sweat equity' is tied up in your privately-held
business. And without a pro-active plan for protecting that wealth, you
leave that business wealth exposed.
As always if you need some advice, you're
welcome to email me of call me here at the office at 281-993-4530.
Charles Wilson, CPA/CFF, CGMA, CBEC
Charles Wilson, LLC
307 S. Friendswood Dr, Ste B-2
Friendswood, TX 77546
Charles Wilson, CPA/CFF,
CGMA, CBEC is a Certified Business Exit Consultant and is affiliated with
Pinnacle Equity Solutions, Inc., an Exit Strategies Training and Solutions
company. Parts of the content in this email are taken from previous
Pinnacle Equity Solutions, Inc's. newsletter library and website in
accordance with Charles Wilson's certification in Pinnacle's Certification
and Membership Program. All Copyrights are the properties of Pinnacle Equity
Solutions, Inc. and Charles Wilson, LLC and their respective owners.