This White Paper contains an overview of the Exit Planning Process. We have White Papers describing, in detail, many of its elements. Please contact the advisor who gave you this White Paper if you’d like additional information about a specific topic.
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 everyday: 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 close to financial independence, or
- Are making significant strides toward reaching that goal, or
- Can achieve financial independence today by selling your business.
As these two streams converge, an owner’s thoughts flow inevitably towards exiting the business.
As these two streams converge for you, will your business be prepared for your departure on your terms?
In 2006 Peter Daniels (a fictional but representative owner) told his advisor that he wanted to leave his food processing company in five years by selling it for enough cash to maintain a comfortable post-exit lifestyle.
A quick review of the company’s financials suggested that with a current annual cash flow of $1,000,000 (before Peter’s salary of $400,000), the company’s estimated value was around $4 million.
When Peter’s advisor suggested that they create and implement a step-by-step process to increase value, minimize taxes, and protect existing value from loss, Peter agreed, but did nothing more. Peter never designed the exit plan, much less implement one.
Five years later, Daniels Food Processing, Inc. was pretty much unchanged, but Peter’s frustration had skyrocketed. An economic downturn had significantly affected business cash flow. Peter had reduced overhead, but had done nothing to increase cash flow.
For example, he had not created or updated business systems (especially any marketing plan) or restructured his inadequate and under- motivated management team.
Peter was still at least five years away from his exit.
Exit Planning is more than thinking and talking. It is taking the actions necessary to enable you to reach all of your exit objectives. These objectives include leaving your business when you want, to the successor you choose, for the amount of cash you desire.
Further, Exit Planning takes time. The farther in advance of your exit that you start planning, the more options you have and the better the outcome is likely to be.
The Exit Planning process we describe in this White Paper was created over 20 years ago, and has been refined by the experience of thousands of owners and their advisors.
While each Exit Plan is as unique as the owner who creates it, properly crafted Exit Plans have several signature characteristics.
- They aim to increase business value both in the short term and long term.
- They are put into writing so that all involved can measure their progress toward the owner’s goals.
- They incorporate accountability by holding the owner and each advisor to deadlines for completing each task.