As a business owner, you are immersed in your business. You wake up thinking about strategies for growth. Ideas for new products hit you while you are out walking the dog. Solutions to operations issues come to mind while you are falling asleep at night. You spend much of your time and energy building your company into a strong and successful business. But do you spend enough time thinking about how you are going to walk away from it? Are you asking yourself: what is an exit plan?

Exit planning can feel overwhelming, even for the most prepared business owner. The company is a large part of your identity and your legacy, which can make the transition to retirement or a new adventure a challenging proposition. For many, that makes exit planning a difficult process to begin. However, a well-planned exit strategy is essential for a smooth transition to new ownership, for ensuring your future financial goals are met, and for sustaining your business and your legacy.

The purpose of an exit plan is three-fold:

• Achieve your goals and objectives as the seller.
• Prepare your business for transition. Resolving issues in advance decreases risk for the buyer, which increases the value of the company.
• Prepare for unexpected changes in business climate and or ownership. An exit plan can provide a smooth transfer, which can mitigate an unanticipated loss of a business owner, key employee or customer.

First, evaluate you. Your first step in starting to create an exit plan is to begin a process to determine your goals and objectives. Beyond maximizing sale price and preparing the business for sale, imagine what you want your life to be like after you choose to leave your business. Leave on your terms. A strong exit strategy starts with a complete understanding of the financial state and structure of the business and the owner, as well as minimizing the tax implications from a sale. You and your advisors will work through a process to determine how much money you want to set aside so you can continue living the lifestyle you choose, keeping in mind that none of us know how long our lifespans will be. It can be hard to imagine how you will spend your time when your days are not filled running your business, but taking the time to imagine that life allows you to plan for and fund the life you want to live.

Next, evaluate your business. You’ll need to fully evaluate your company’s activity, structure, assets, business drivers, ongoing operating activities, market position and personnel. A business valuation gives you an understanding of the base point, including the company’s relationship to the industry, customers and employees. Understanding your company’s value drivers and cost matrix gives you the strategic tools to forecast and modify future operating expectations. Your most trusted advisors provide expertise in examining various areas of your business and identifying the company’s key requirements for growth. Include your accountant, valuator, attorney, insurance agent and your investment advisor. With your advisors, determine whether or not the company’s value will meet the needs and goals you have identified.

The next step of the exit planning process is to mold the business to the optimal position for sale or transfer by mitigating or correcting any issues identified during the valuation process that might lower the value of the business. Imagine yourself as a potential buyer. What risks do you see? Which parts of the company attract you and which would make you turn away? With your advisors, create a plan to maximize the value of the business and to mitigate risk prior to exit timing.

Your exit plan might include:

• Securing vendor and customer contracts
• Training and preparing potential future business owners, key managers and employees
• Obtaining noncompete, nonsolicitation agreements with employees
• Communicating with key employees in a transparent manner to ensure they stay with the company throughout the process
• Compensating key employees in a way that keeps them interested and invested in the company through the transaction date and beyond
• Managing pending litigation and contention obligations
• Correcting flaws in operating activities that could affect margins or profitability
• An understanding of the competitive environment and managing risks
• Solidifying reporting practices to satisfy future due diligence requirements

Next time you are out walking the dog and are inspired with a new product idea, take it one step further. How will that new idea impact my exit plan? Would it make the company more valuable to a potential buyer? A solid exit strategy and plan with the help of your trusted advisors gives you peace of mind. You have confidence that your beneficiaries are prepared in the event of a tragedy, that you are optimizing your position, and that you are on the right path to achieving your goals for your company, your future and your legacy.

If you’re still asking yourself, “what is an exit plan?” Contact Cray Kaiser today. We can help you get one started.