Whether you plan to sell your company outright, transfer to management, or pass to children, you need a roadmap to help you get there. While Exit Planning can feel overwhelming, our 6 Step Process is valuable in formulating a game plan and making progress towards your goals.
Step One – Establishing Owner Objectives
What would you like to achieve with your exit? When? For many owners, it isn’t simply one thing. Often, it is financial security or diversification. It could be a desire to involve children or to reward key employees. Perhaps it’s to achieve the freedom to enter the next chapter of life. Whatever it is for you, it’s important that you spell out your goals.
Step Two – Financial and Mental Readiness
Do you know what it would take to be financially independent outside of your company? A thorough analysis will determine the financial resources necessary to sustain your lifestyle after exit. The results define the Value Gap between your projected assets and what’s needed to meet your goals. Additionally, you must assess your mental readiness for exit. What will you do after exit? How do you feel about being identified as someone other than the owner of your firm? The mental game is often more challenging than owners think.
Step Three – Discover Which Type of Owner You Are
Business owners typically fall into four categories based on their financial/mental readiness. Your exit options become clearer once you recognize your owner type, and the corresponding transfer methods. Who do you resemble?
Rich and Ready To Go – Financial readiness is high, and mentally you can’t wait to start life’s next chapter.
Wealthy But Enjoy Work – You are financially set, but you like working and don’t want to retire.
Stay and Grow – You’re not financially ready, and are happy to work to build net worth and company value.
Get Me Out Now – Your needs require much from the business, but mentally you are headed for the exits.
Step Four – Learn Your Exit Options
If you are like most owners, you know very little about ESOPs, Private Equity Recaps, Management Buyouts, Gifting Strategies or the myriad ways to structure a Third Party Sale. An education is helpful, even if to merely discard the options that won’t apply. Given your goals and financial needs, the most likely exit paths begin to take shape in this step.
Step Five – Understand the Value of Each Option
It’s not what you make, it’s what you keep! You must run the numbers for each of the applicable exit options. You’ll learn about the range of values associated with private companies, the impact of taxes and fees on any transaction, and the cash flow results for both you and the business throughout the exit. You’ll want to know this well before executing the plan.
Step Six – Execute Your Strategy – Protect Your Wealth
You’ve chosen your option, made your plan, and now it’s time to execute. Assemble your team, plan for contingencies, and take action. You’ll learn how to help protect your wealth from estate taxes, and provide for plan completion in the event of an untimely death or disability. This final step provides the written action plan for you and your advisory team to use as the roadmap for making your goals a reality.
What if I am a “Stay and Grow” owner and not interested in exiting my business currently?
Many owners do not possess the financial and mental readiness to transfer their business at the present time and are mainly interested in improving the financials of their business. We provide a series of tools that can enhance the performance of their businesses and provide for greater proceeds at the time of eventual sale:
Business Valuation Estimator – What is the true value of your business today? This is a question many owners ponder. We will perform calculations which will show the potential value of your business using several widely accepted valuation methods, based on a review of current financial statements.
Corporate Policy Review – If your company owns or pays for life insurance to support buy/sell agreements, split-dollar, key person, deferred compensation plans, estate plans, etc., a Corporate Policy Review is recommended at least every three years to make sure your policies are cost-effective and will meet your expectations.
Buy/Sell Agreement Review – Do you have a catastrophe plan? Is it up-to-date? What would happen to your business if you or your partner(s) met an untimely death? Or disability? Or if you decide to retire? Does the price reflect today’s valuation? Unless your agreement has been reviewed in the past three years, it may pose a serious threat to you, your business, and your family.
401(k) Plan Review/Benchmarking – In light of the recent Department of Labor (DOL) Fiduciary Rule, there is a requirement to review your 401(k) plan to ensure that you are in compliance with all fiduciary requirements. We offer a complimentary retirement plan review to benchmark fees, investments, fiduciary coverage, and performance.
Marketability Assessment – If you are seriously considering a sale of your business to a third party, a Marketability Assessment is critical. It helps business owners determine whether a sale of their business to outsiders makes financial sense. We provide a valuation range based on comparable sales and prevailing EBITDA multiples in the industry, recommendations to enhance value, and access to our national network of Investment Banks and M&A firms to assist in implementation.
Value Driver Assessment – A value driver is a factor that increases the value and marketability of a business. We have compiled an assessment tool to address these value drivers with a rating system that will help to determine your company’s strengths and weaknesses. In preparing to transfer your company, you must carefully consider these value drivers. We will also identify possible value detractors and deal killers. The goal is to help you understand your company’s strengths and areas for business value improvement.
Owner Dependency Index – The first key to creating a transferable business is measuring and managing the Owner’s level of involvement in the running of the business. This short, twenty minute assessment will ask you forty questions about your involvement with your business as a step towards measuring your business’s dependence on you and ultimately how to increase your business’s value.