One of the topics I constantly discuss with Financially Simple visitors and clients, especially the ones who own businesses, is exit planning. To explain the concept to people, I find that it’s sometimes easier to tell them what Exit Planning is NOT.
According to the Exit Planning Institute, 80-90% of business owners’ net worth is tied up in their business. Business owners who fall into this majority tend to believe they will build their business until they are ready to retire, then put it up for sale. For them, an “Exit Plan” may mean selling to a third party, selling to a family member, or dissolving and liquidating the company. They hope that any resulting money will fund their retirement. Eventually, they will call me and say “Hey Justin! I’ve got an offer on my business. Can you help me sell it?” Well, this is NOT exit planning.
Think of it this way. The word exit means you’re leaving. However, the next word is PLANNING, which means you come up with a STRATEGY to exit.
“Hey I’ve got an offer!” or “I want to sell my business next week” is a transaction. It’s not a plan, and your exit isn’t going to happen that quickly or easily.
Did you know that it can take upwards of 5 years to reap the full benefits of the tax code when it comes to exit planning? Essentially, that means you must plan well in advance to realize these benefits.
What exit planning truly is, is working with a sharp team of professionals. Typically, you’ll gather together a good attorney, a good CPA, a good CFP®, and a good CEPA® (who could be both also function as your CFP®). Just make sure that you choose professionals who are knowledgeable about business plans, exit plans, business sales, and business taxes. Keep in mind; there a lot of CPAs out there. I think there are around 660,000 CPAs in the United States right now. Not every CPA is knowledgeable on the issues that face an exiting business owner. And not every attorney or CFP is knowledgeable about business issues, either. I recommend you reach out to a Certified Exit Planning Advisor who can act as your quarterback as you prepare your company for your exit.
Believe it or not, all of these professionals need to come together and work with you over a period of years to maximize the value of your business. That way, you can get the most bang for your buck when you are ready to sell.
Three-quarters of today’s business owners will exit or transition from their business in the next 10 years. Those owners, in particular, have to begin doing some exit planning, so now’s the time! If you’re years and years away from retirement, start planning now to get a head start on building value in your business. Start by building your core team – a CEPA®/CFP®, a good tax attorney, and a CPA. It’s not a one-man show. These professionals will guide you to make a business exit strategy that will help you reach your particular financial goals.
If you realize that you need to start your own exit planning, click on my Building a Sellable Business article series. In it, I take you through the steps you need to take to start, build, and sell your business for maximum profit. In essence, I’ll give you tools you need to prepare your exit plan!