No one likes to think about planning for an eventual exit. Either from a job, a business, a volunteer role, or even the final exit, death. For many people, it’s on the “someday” list. Someday, I’ll get a will...
No one likes to think about planning for an eventual exit. Either from a job, a business, a volunteer role, or even the final exit, death. For many people, it’s on the “someday” list. Someday, I’ll get a will done. I’ll pay more attention to my health, I’ll work less and enjoy other aspects of my life more. Someday…
We have learned many things throughout the Covid 19 pandemic, one is that “someday” may come out of the blue and catch us unprepared. Many of those who were hospitalized or passed away “before their time” were people who had not planned to “exit”. Some were business owners. Some were business owners who still managed and worked in their own businesses; whereas others had achieved “hands-off” status and were still owners.
As in many areas of our lives, the more prepared we are for different scenarios, the faster we can respond because we can see them coming and head them off at the pass. We are also better able to take advantage of opportunities as they arise if we’ve been planning all along.
Think about some of the major events in your adult life to date:
Pursuing a career – this took some planning to be ready for the training associated with a particular career path. You had to plan the time to train, the financing to pay for programs/courses, and perhaps where you were going to pursue this career. Finding your life partner – this too took some thought and some planning. Deciding to have children – took some planning. I’d also bet that you wish you had done more planning! Even if you had an unplanned pregnancy, the 9 months you had to prepare for the child’s arrival were invaluable. Moving – if you’ve ever moved from one city to another, you can appreciate the value of planning the move! Planning included booking the moving van months ahead of time, figuring out what to purge and what to move, having the garage sale / donating items. Closer to the move date – arranging supplies, getting the family out of the house, and planning for an interim stay in the new location. Deciding to get a pet – planning for the type of pet, its care, financial investments, etc. Deciding to start/buy a business – researching, figuring out how you’d operate it, how you would finance it, etc. took some planning!Planning includes not only the “What” but also the “how”. Time, money, and capital are all resources that can be invested in the planning process and in executing the plan.
Exit planning is just good planning for what life will look like for you, your business, and your family “after” you exit from specific roles or from all roles! There are 2 general phases to a business owner’s exit: 1 – exit from day-to-day management and operations and 2 – sell ownership.
Both phases can happen all at once – i.e. you sell and retire from the business at the same time. Exits can also happen over time whereby you remove yourself from specific tasks and responsibilities by delegating them to someone else (successor or team member) or having an automated system take them over. You can delay the “sell” aspect of your exit for many years or can identify triggering events that would start the sale process. If you choose to sell, you again have the option of selling all at once or over time.
Planning for management succession and eventual new owners of a business is critical for a successful exit – both for the owners and for the business. Maximizing the value of the business and after-tax cash in your pockets is a marathon, not a sprint. It leverages expertise from your tax and accounting specialists, your financial advisors/wealth managers and can involve many other team players such as corporate lawyers, regulatory bodies, bankers, business brokers, and your family. Unfortunately, too many business owners are unprepared for their exit, missing the opportunity to have their legacy continue. As baby boomers transition their businesses over the next 10 years, it will become a buyer’s market. Businesses that are not “attractive” to potential buyers will not sell. The impact of losing this economic engine in a community can be significant for employees, suppliers, customers, and the regional economy.
Thinking of Family Succession?
If you’re thinking of a family succession or an internal transition to employee(s), you still need to plan. Often planning is more complex with internal transitions than with 3rd party transitions. You may have heard the common transition plan of “I’m going to turn everything over to my daughter when I die. It’s in my will”.
This is a scary plan for a few reasons:
The income taxes due may force the sale of the business or other assets. If the daughter isn’t actively working and managing the business, she is unlikely to be successful in continuing the business. What was their relationship like? The daughter may just close or sell the business.As you can see, there are both personal, financial, and practical reasons why this plan may not be preferable!
Even if you’re “not going anywhere, anytime soon”, we’d love to talk with you about planning your eventual exit.
Speak to an advisor to get started on your plan!
If you would like to receive tooltips and articles such as this one to your inbox once a month, click here to sign up for our newsletter.
The post Why Should I Concern Myself With Exit Planning? appeared first on Provision Business Advisors.
