Once you’ve created a team, what’s the next step?
Business owners should be prepared to answer a lot of questions from the team of experts. The goal is to clearly delineate an owner’s exit objectives. Objectives must be identified in order to determine the appropriate exit route. What are your goals? Which exit route is best for you? Which one meets your exit objectives? Who are your key employees? How are you going to protect the value of the company? What do you see as the long-term vision for the company?
For some, a sale to a family member may be the No. 1 objective because the owner is looking to transfer the company to someone they know and trust. Others may value the big cash pay-out of a third-party sale and may be eager to wash their hands entirely of the business. Some may only be concerned with the effect of the sale on employees and customers. This is just a brief sampling of the issues that owners must think about when working with advisers.
Are there other exit planning steps an owner should consider?
First, advisers must ascertain all business and personal financial resources. If things are done in a piecemeal fashion, things are often overlooked. You need to know exactly what the owner has on both the business and personal side.
Next, focus on maximizing and protecting the business’s value. If an owner wants to sell to a third party, he or she should work with advisers to find the best possible way to maximize the price and sales terms.
Alternatively, if the sale is to be to an insider, planning must still take place to ensure you know how to transfer your business to family members, co-owners or employees. The last place you want to find yourself is four years into the planning process, only to find out that the key insiders are no longer capable of carrying out this transaction.
Preparation for handling risks is also an important component of exit planning. What happens if the owner dies, or becomes disabled prior to the transaction? What if there is a financial crisis with the business? These types of situations could impose severe consequences to the life of the business. There must be plans in place to ensure that if anything does happen, the business will continue.
Finally, the plan should include personal wealth and estate planning. Exit planning takes business owners through a methodical process that identifies financial goals and objectives very clearly. It’s just as important to quantify what exactly an owner and his or her family needs out of the sale of the business in order to have a successful exit and to support the post-ownership lifestyle they wish to live.
Keven Prather is a financial adviser specializing in exit and transition planning at Skylight Financial Group. Reach him at (216) 592-7314 or [email protected]. Keven P. Prather is a registered representative of and offers securities, investment advisory and financial planning services through MML Investors Services, Inc. Member SIPC. Supervisory Office 1660 W. 2nd St., Ste 850, Cleveland, Ohio 44113. (216) 621-5680. CRN201207-137143
