Planning Your Exit (Mike Boschetti Commentary)

by Mike Boschetti  on Monday, Apr. 22, 2013 12:00 am  

Mike Boschetti

“You’ve got to be very careful if you don’t know where you’re going, because you might not get there.” — Yogi Berra

While interpreting Yogi is often a challenge, in this case if you are a business owner, perhaps this might cause you to contemplate just where you are headed in your business. 

As you get nearer to the time when you will leave behind the daily worries and stresses of business ownership, have you defined a successful exit? Do you know where “there” is, or how to begin to get there?  

For years you have successfully planned how to manage and grow your business. Maybe it’s time to plan for what many people call the “biggest financial event of their lives.” 

We have found in our practice that unless you set and prioritize your exit goals or objectives, you may find that you have too many goals or that they conflict. In either case you may not make much headway toward “there.” 

To illustrate the importance of setting and prioritizing exit goals, let’s review “Bill’s story.” a business owner who said he had the following goals:

  • Leave his business within three years, but he was ready to leave today, 
  • Leave with the financial resources to provide a continuation of his current lifestyle, and 
  • Transfer the business to his son. 

A quick review of Bill’s personal financial statement, however, revealed that most of the income required to maintain his lifestyle would have to come from the business. Since Bill had not prepared an exit plan, and his son had no funds with which to purchase his ownership interest (which is usually the case), a long-term installment note seemed to be the only answer. This was a risk Bill was unwilling to take and we would have to agree with that assessment in most situations. 

Bill’s objectives could have been achieved had he taken the time (well before he wanted to leave the business) to establish and to prioritize his exit objectives. If, for example, his need for financial security prevailed, selling the business to a third party for cash might have been the best and quickest exit path. If, however, attracting a qualified third party was unlikely, he would most likely have needed more time to devise and implement a plan to transfer to an insider (child or employee) who could have provided adequate cash. 

On the other hand, if his desire to transfer the business to a specific person or group trumped his need for financial security, and his deadline for departure was drawing near, financial security in the form of “up-front” cash would have to take a backseat. 

As you can see, owners should consider — simultaneously — the following three primary exit goals:

  • Financial security,
  • Transferring the business to the person of his choice (may include key employees, co-owner or child), and
  • Leaving the business when he wants.

He should ask which would be the most important exit objective and then rank the answers from most important to least important. 

Though there are only three primary goals, the process of planning to attain those goals is complex. A plan that exists only in an owner’s mind will not be effective. Your exit plan must be in written form and should include an action checklist among other detailed items. This checklist describes each action to be taken at each step of the exit process. It assigns responsibility for each task to a specific person and also specifies a date by which this action must be completed.  

Armed with these written tools, a team of skilled and experienced advisers, and — ideally — several years, you optimize your chance for not only knowing where you’re going, but how to get there.

Mike Boschetti is a principal with Cornerstone Business Advisors, a Little Rock business brokerage and exit planning firm. He is a CPA, Certified Exit Planner and Certified Business Intermediary. Email him at MBoschetti@CornerstoneAdvisors.biz

 

 

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