The starting point for any type of plan is defining its goals. In the case of planning a business exit, that means knowing what it means to leave, or exit, your business. Your exit could be due to retirement, sale to a family member or perhaps you are ready to move onto a different challenge. No matter what your reason for leaving your business, you need to have a plan to exit it successfully.

Philosophers, business owners and successful people from all walks of life understand the critical importance of establishing goals, creating plans to attain those goals, and persevering to see their plans through to completion. The same is true of exit planning.

At Synergetic Finance, we having worked with business owners from all walks of life to create successful exits. We know that it is critical to establish three principle Exit Objectives before moving forward with your Exit Plan.

  1. Cash: How much cash do you need when you exit to support the lifestyle you desire? For example, do you want to be cashed out when you leave the business, or are you willing to receive the purchase price over time?
  2. Time line: When do you want to leave the company, or how much longer are you willing to remain active in the company?
  3. Buyer(s): To whom do you want to sell / transfer the company? To a child? Key employee? Co-owner? Or perhaps to an outside party who can pay top dollar?

Let’s look at an example of an owner who arrived at his exit date without a plan to reach his goals:

John, the owner of a 40+-employee manufacturing company had long thought of transferring his business to his nephew and a key employee but had done little to prepare for that transfer. As tougher economic conditions challenged his company, and he reached his 60th birthday, he decided it was time to retire.

Here’s what a consultation with John might look like:

“John, it’s helpful that you’ve established two of the three Exit Objectives critical to all successful business exits. You’ve determined that you don’t want to work much longer in the business. And secondly, you have decided that you want to transfer the business to your nephew and a key employee.”

“But what about the third Exit Objective: how much money do you want or need when you leave the business? And have you determined whether you need cash, or can you accept a promissory note for part or all of the purchase price?

At this point, John has two choices:

1. He could retire immediately and try to sell the company for cash—but not to his nephew and key employee. They have no cash and no bank would lend an amount even close to the amount necessary to close the deal. If John wanted to sell today and receive an amount that would support his preferred post-exit lifestyle, he would have to sell to an outside third party with sufficient cash.

2. John could sell the company to his nephew and key employee, but he will have to wait six to ten years to (hopefully) receive the entire purchase price.

John’s situation illustrates why setting objectives and goals, understanding how each affects the other, creating a plan, and then acting to reach those goals is so critical to a successful exit.

If you prefer to leave your business on your own terms—which means leaving your business to the successor you choose, on your timetable and with the amount of cash you desire—you must take time to formulate specific, consistent, attainable goals and objectives.

You must determine a course of action—a plan—based upon those goals, and you must hold to that action until the goal is reached. The key is action. Without setting goals at the outset of your exit journey, you may drift aimlessly until it’s too late.

Don’t be an owner who is too busy working in your company to work on your company including the most important financial event of your business life – your business exit. We are happy to help you begin by providing you with more information about setting objectives and to discuss other critical Exit Planning topics. Contact us for more information.

To your success,

Joe Maas, CFA, AVA, CFP®, ChFC, CLU®, MSFS, CCIM
President of Synergetic Finance