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Why a Business Owner's Exit Plan Is So
Important
There are plenty of days when we want to "take that job
and shove it." But what happens when we're sick of a job
we've created for ourselves in a business we've founded?
The idea is to make a plan that allows you to get out before
you tire of your company or before you are overwhelmed by
personal, industrial or economic factors that force you to sell,
transfer or close a company. This is called an exit plan.
Everyone glamorizes creating a business as a way to
completely control one's own destiny. But it's ironic how many
businesses go on day-to-day without any thought to a proper
ending. An exit plan is not only a set of mental notes about how
one should pack up and move on. It is a way to focus an owner's
thinking about:
- A family legacy — should a
business be passed on to family or associates, or
should it simply be sold or closed?
- The owner's own career
goals — does an owner want to do this for the rest of his or
her life, or should they make way for other professional or
personal directions?
- The creation of wealth —
too
many people think of a business as a job and a
paycheck instead of a creator of wealth that can support one
or more generations of a family. A paycheck supports
short-term goals; wealth is accumulated money that can
either be invested smartly in the business or outside the
business to support philanthropy, or family and personal
goals.
- A retirement strategy
that allows an owner to do everything they've dreamed after
they quit.
An exit plan isn't born in a day. In fact, many financial
experts in investment, tax and estate planning disciplines think
it's wise for business owners to come up with an exit plan when
they start a company if possible, and if not, within 3-5 years
of the date they'd like to exit. A CERTIFIED FINANCIAL PLANNER™
professional with specific expertise in working with business
owners could be a helpful partner in helping you determine the
following:
- How many more
years do I want to run this business?
- What's the optimal way
to get rid of the business when I'm ready to go? Do I want
to sell it, transfer it to family or associates or just
close it down?
- What if I got a
fantastic offer on the business tomorrow? What would I
do?
- If I sold my business,
how would I protect myself from a personal and business tax
standpoint?
- How do I communicate my
wishes and ideas with my spouse, kids and other family
members with a stake in the business?
- What about my
employees, clients and customers? How do I protect them if I
die or decide to leave?
- How much money do I
want in my life after my business, and what would I do with
it?
- What should I do to
make my business as valuable as possible?
- How do I plan the tax
implications of my actions toward the end?
- If I have investors,
how do I make them happy as I leave?
- Are there any specific
accomplishments I want this business to make before I leave?
An exit plan allows you not only to change your own
employment, but to help you change your whole career if you
choose. No one has to stay in the same industry — or company —
for life, and with an exit plan, you can leave open the
possibility for an endpoint that will allow you to travel, do
philanthropy or any number of new activities in business or
other walks of life.
The financial planning aspect of the exit plan will align
your monetary needs with your career or post-career needs. Your
exit plan can do whatever you want it to. Some entrepreneurs
build sabbatical time and other arrangements for study and
learning into the timeframe leading up to their exit to help
them refresh their minds and decide what their next career or
vocation will be.
The bottom line is that it's never really too early to start
thinking of an exit plan for a business you've formed. Today,
smart entrepreneurs start asking themselves those questions as
they're organizing and forming companies. Get some good advice
to start that discussion.
May 2008 — This column is produced by the Financial
Planning Association, the membership organization for the
financial planning community, and is provided by Don McCarty of
Financial Decision Partners, a local member of the FPA.
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