We’ve talked about some important steps in developing a successful business exit plan: Setting a tentative Departure Date so that Advisors can put all planning efforts in context;  assessing your post-retirement financial needs because meeting them is a key measure of your Exit Plan’s success; choosing a successor to give structure to your Exit Plan. Keep in mind, it is not uncommon for an owner’s sale to key employees (for example) to be preempted by an offer from a third party. Your advisors should design a flexible plan but they do need direction from you.

Another element of a successful Exit Plan is to know what your company is worth. To accomplish this, retain (if you haven’t already) a valuation specialist to give you and your advisors a good idea of what your company is worth. As you know, any Exit Planning Process should be owner based. Its foundation is your goals—one of which is how much money you want when you leave your company. The other part is knowing what type of vehicle you’ll be driving to that destination. You and your advisors need to know whether your company is a dependable, high-performance road warrior or a temperamental vehicle prone to periodic breakdowns. If it is the latter, incorporate that knowledge into your Exit Plan.

Part of the necessary planning includes minimizing or eliminating any weaknesses, making your company more desirable to buyers—thus more valuable. Once you determine current value, these plans can motivate employees to increase that value to the level you require for a successful exit. If you are considering a transfer to insiders (key employees, co-owners or family members), your advisors will likely recommend that you begin transferring ownership in advance of the transfer of your controlling interest. So that you receive more money (and the IRS less), these initial sales are usually made at a discounted value. Of course, the IRS will carefully review the reasons you reduced its take, thus highlighting, once again, the need for a certified valuation specialist.

No matter your desired target successor, or target departure date, an independent valuation provides a solid basis for future planning. Of course, it costs money—typically between $4,000 to $10,000. Imagine that, after spending many months and thousands of dollars on planning your exit, you learn that the value of your company can not support your exit –either on your timetable or for the amount of cash you wanted. Alternatively, you could find that all the months, even years, of working toward your departure were simply unnecessary in light of the lately-discovered value of your company. Would you put your home on the market without knowing its value? Your business is likely far more valuable and the conversion of that value into cash is far more important to your financial future. For all these reasons then, determining a reliable value is essential before planning your exit can truly begin.

 

Tags: Business Valuation, business value, business worth, departure objectives, financial security, minimize taxes, sell your business, value of your business