Planning to exit your business is a big undertaking that has implications for your business structure, its assets, your employees, and your tax obligations. Whether you’re retiring, selling your business, or going through bankruptcy, you will want to develop an exit plan with your lawyer and a business valuation expert.
Business exit planning is sometimes called business succession planning. Exit planning helps you maximize your financial return and minimize your tax liability when you transfer your business. Also, if you pass away or become disabled before you retire, exit planning will help the business survive your departure, enabling you and your family to receive its full benefit.
Succession planning relates to relinquishing management responsibilities.
Interview with Richard Claywell, CPA
We recommend the following steps when developing an exit plan for your business:
Establish Owner Objectives
To form the foundation of your exit plan, start by asking yourself the following questions:
- When do you plan to leave your business?
- How much money will you want or need when you leave?
- Do you plan to transfer ownership to insiders or sell your business to outsiders?
Establish Your Current Business Value
- How much is your business actually worth?
- Will the value support goals and objectives for exiting the business?
- Valuation for sale versus transfer to insiders
- See an overview of the business valuation process
- See examples of different business valuations
- Identify and develop key value drivers
- Ensure exit strategies and goals can be achieved
- Reduce risk associated with owning the business
- Enhance probability of future continued growth for the business
Sell to a Third Party for Top Dollar
- How do you find the right buyer?
- Structure the sale to maximize after-tax proceeds to the owner
Transfer to Family Members or Management
- Exit plans for transferring the business versus selling to a third party
- Inside buyers often lack enough cash to buy business in full
- Transfer of business is not closed until owner is paid in full
- Arrange for a successful sale to insiders
Develop a Contingency Plan for the Business
- Document a plan to protect the business and its continuation in the event of the owner’s death or disability
- Business continuity is much more than having a new owner in place
Wealth Preservation Planning
- The plan should protect the current value of the business
- Includes a plan for transferring the business or proceeds to family members in the event of the owner’s death or disability
Boomer Market Advisor January 2007 named Richard Claywell in “Top Exit Planning Experts From Across the Country”.