Guest view: Try a new attitude toward exit planning
For many business owners, the term “exit planning” has a negative connotation. As a result, they often wait too long to start preparing, which makes the ultimate transition difficult—or worse, unsuccessful.
To overcome this challenge, we have to first change the way we think about exit planning. Instead of thinking of it as a singular event, or the last action you take as the owner of your business, we advise business owners to view it as an integral part of the business. Just like the other aspects of your business that make it successful, it is something that requires time, discipline and a team of professionals to execute it effectively.
Why is exit planning so hard to face?
There are several reasons why the idea of exit planning can be unappealing to business owners. Many see exit planning as a burden, stealing precious time and attention from the demands of their growing business. Others may view it as a loss of control, especially related to their financial success. In addition, many owners have a deep emotional attachment to their company, which has shaped their personal identity and place in their community.
So it’s understandable why some business owners find it difficult to think about the day they will need to sell or transfer their business. But the reality is that if you’re a business owner now, in the future you won’t be. Eventually, you will exit from your business. And the sooner you start planning, the more successful that transition will be.
Are you ready to sell your business?
The Exit Planning Institute’s 2013 State of Owner Readiness Survey shows that when it is time to sell, 70 percent to 80 percent of businesses haven’t prepared enough to receive a desirable price, or any buyer at all. And of those business owners who do find a buyer, within a year 75 percent came to deeply regret selling because they hadn’t fully considered their financial needs or prepared emotionally for their new post-sale lifestyle.
Selling a business requires a variety of skills and professional expertise. You’ll need a team of tax, legal, accounting, business valuation advisors and others. It takes time and intention to build the right team to guide this process to successful completion.
How can you make exit planning a business strategy?
When it is time for you to leave your business, you want to feel financially and emotionally prepared. Exit planning, therefore, is not an event that begins when you decide to leave your business. It’s a strategy to help you through the whole process. It’s a way to ensure you have:
• A desirable valuation for the business
• A transaction structured for optimal tax, estate and financial planning results
• A road map for your financial and social life after the sale
When framed this way, many owners see the wisdom of advanced planning. To help you get started, the Exit Planning Institute has created a process called the “Value Acceleration Method,” which educates business owners about how to get the best results for their business, families and employees.
This multi-step process will take time, and require the help of your trusted advisors. There are several action items to complete to ensure you sell the business when the timing is right, beginning with a business valuation and personal financial assessment. Each step will help you decide if you are ready to sell.
You’ve decided to sell—what’s next?
One critical part of this process is the need for a detailed plan for life after the sale. A few questions to consider are:
• How will you spend your time?
• What kind of philanthropic goals do you have?
• What will your role be in your family, as well as your community?
• How will your departure affect your firm and your employees?
Having a post-sale plan will help ensure that you are ready for the next stage of your life, so that you do not regret your decision.
Exiting a business is likely to be one of the largest, most critical transactions of your professional life. It can have a far-reaching impact on your family and community. Procrastination is one of the biggest threats to effective exit planning. Start planning early and exit on your own terms, rather than someone else’s.
Scott Pinchak is a senior director and certified exit planning advisor for BNY Mellon Wealth Management in Central Pennsylvania.
This material is provided for educational purposes and not intended to constitute exhaustive legal, tax, investment or financial advice. The information in this commentary may not be appropriate for every one; so you should consult with professionals who have reviewed your specific situation. BNY Mellon Wealth Management conducts business through various operating subsidiaries of The Bank of New York Mellon Corporation.