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How to Create an Exit Plan for your Business

First, before I give you the three steps to creating your exit plan, understand that all exit plans should be integrated with a sophisticated, tax-wise estate plan. If you are interested in maximizing you tax savings, you will want to make sure that you consult with an experienced tax expert while exiting your business.

To create an effective exit plan, I recommend these three steps:

1. Set clear, concise goals.

This first step addresses three critical questions:

  • When do you, the CEO, want to stop working here?
  • After selling the business, how much would you like to have in the bank so you don’t ever have to work again (or worry about it)?
  • When do you want to get liquid, stop investing in this company and invest in something else?

Answering these questions identifies three important goals: the date the CEO will leave the business, a financial target and the date the shareholder will leave the business. The answers to questions one and three are often very different.

2. Conduct a current state analysis.

Step two begins the process of determining how to achieve the goals set in step one. This involves a careful analysis of three key points – the value of the business, the strengths and weaknesses of your business and your company’s strategic position in the marketplace. 

Start your analysis by determining a reasonable and realistic value for your business and compare it to your answer to question #2 in step one. This identifies the gap between how much your business is worth and how much you need to have in the bank in order to finance your retirement. Next, identify your company’s strengths and weaknesses so you can fix any glaring defects or problems. Finally, understand your company’s strategic position in the marketplace by asking questions like:

  • Which companies are buying other companies like mine?
  • Which companies are being sought by strategic buyers and why?
  • Does my company fit that profile?
  • Who is likely to be a strategic buyer for my business?

The ideal time to sell, is when your personal goals, the value of the business and market conditions are all in sync.

3. Identify your exit options.

Privately held business owners have four basic ways to cash out:

  • Sell to an outside entity.
  • Transfer the business to the next generation.
  • Sell to the management team and employees (ESOP)
  • Initial public offering (IPO)

Each option comes with its own complex set of issues and questions that need answering. Look at all the available options, comparing them side by side, and identify which one will best help you accomplish your goals.

For more information on how Kardia can help you exit your business, please contact us or call 303-752-0590.

Joe SturnioloBy Joe Sturniolo
Christian Family Legacy and Wealth Planning