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Resetting the Business Exit Plan in a
Tough Economy
The unpredictability of the markets and the economy has reset
plenty of retirement plans, and that's been especially true for
business owners.
Business owners on the brink of retirement are facing
potentially the worst conditions for selling or handing off a
business in decades. But their circumstance should serve as a
lesson to their younger counterparts. It's critical to build an
exit plan that works under both sunny and stormy conditions.
Exit plans are essential in companies large and small, and
not strictly for the purpose of letting the owner and founder
retire. They certainly set in motion a series of triggering
events for the owner to get his or her money out of the business
at retirement, but they also incorporate succession and other
strategic moves a company might make to assure its future in
family hands or in the hands of a new owner.
That said, an exit plan isn't born in a day. In fact, many
financial experts in investment, tax, valuation and estate
planning disciplines think it's wise for business owners to come
up with the first broad strokes of 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 business expertise can be a helpful
liaison that works with other key professionals to help owners
find answers to the broadest issues in any company's exit plan,
including:
- The family's business 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 he or she want to do this for the rest of their
life, or should they make way for other professional or
personal directions?
- The company's overall
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.
- The owner's retirement
strategy that allows them to do everything they've dreamed
after they leave.
Planners can help owners get to more specific questions based
on the broader goals they've discussed with family members:
- How many more years does the
owner want to run this business?
- What's the optimal way
to get rid of the business when I'm ready to go sell it,
transfer it to family or associates or just close it down?
- What's the value of
the business now and how can it be made more valuable to
potential buyers or for transition to the next generation?
- If the company is
being transferred or sold to family members, is there a
growth plan in place that they have contributed to and are
therefore likely to follow?
- What happens if there's an
unforeseen event or market downturn that threatens the
business or the industry as a whole? Are there healthy
relationships in place with potential acquirers?
- What if there was a
great offer on the business tomorrow?
- If the business is
sold, how do owners protect themselves from a personal and
business tax standpoint?
- How does the owner
communicate his or her ideas with spouses, children and
other family members with a stake in the business?
- What about employees,
clients and customers? How will they be protected if the
owner dies or leaves the business?
- How much money does
the owner want after leaving the business and how should it
be handled?
- How should investors
in the business be compensated if the owner leaves?
- Are there specific
goals that should be met by the business before the owner
leaves?
An exit plan allows an owner not only to move out of a
business, but also to make a wholesale career change. No one has
to stay in the same industry or company for life, and with
an exit plan, owners leave open the possibility for an endpoint
that will allow them to travel, become philanthropic or engage
in any number of new activities in business or other walks of
life.
And while the economy is struggling back from the brink, many
smart exit planners realize that there are ways to manage
delayed transitions without losing valuable employees. For
instance, many owners may elect to take a sabbatical while
allowing next-generation leadership to get behind the wheel
before an official transition takes place. Such a move lets the
next generation steer the boat on the schedule they hoped for
instead of standing in place while the owner found her best
opportunity to go. The owner, meanwhile, benefits from the
chance to step away from the day-to-day operation to better plan
their future and the company's.
July 2009 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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