Exit Planning is a Complex Decision and a Complex Transaction – How to Master Both for a Successful Result

When considering an exit from your privately-held business, there are a number of obstacles that can get in the way of success.  It is easiest to view your business exit in two (2) distinct parts – first, an exit is a very complex decision.  Then, once a decision has been made, the actual exit is a complex transaction.  By understanding the nature of both the decision and the transaction, you are empowered towards a more successful business exit.  Let’s begin with the decision as a process, not an event.


Icon of a person thinking about their business exit planA Complex Decision

Exiting is a Process, Not an Event

Let’s compare your business exit to the sale of a home – which many owners can relate to as the largest financial transaction they have experienced to date.  A sale of a home is more of an event than a process. Many home sales will include a mini process of painting the house and making a few repairs that would obviously increase the value and make the sale easier. Home sellers may have even experienced a bit of ‘seller remorse’ as they move away from the home that held many memories. However, in all likelihood the seller was moving into a new home that would better suit the needs for the next stage in their life. In any event, the financial and emotional impact on the sale of the home was likely more event-driven than process driven. A business exit is the opposite.

A business exit needs to be viewed as a process, and a complex process at that.  The first part of this process is clarifying your goals and then learning about and applying the exit options that will help you to meet your goals.  Let’s begin there:

Knowing Your Goals and Exit Options

The first step in making a solid exit planning decision is to first set your goals.  Nothing is more critical to the process of an exit than being able to clearly articulate what will motivate, drive and fill your time as your business career (at least as it exists today) begins to wind down.  Incorporated in those goals will often be certain people that you have [formally or informally] considered as future owners.  Therefore, it is equally important to educate yourself on the exit options available to you. Many owners get caught in the trap of thinking of an exit as the sale of their business to an outsider and they don’t explore other possibilities. In addition, many owners don’t understand that the sale of their business is sometimes not an option at all – especially in a challenging economic market. Management buyouts, ESOPs, and gifting programs are a few of the options that may be a surprising fit for an exiting owner.

Understanding the Exit’s Impact on Others

Forecasting how your exit will impact your employees, customers, vendors, creditors, community, trusted advisors and family is also critical to the process. Clearly, your exit decision will have varied responses from each group.  Owners often struggle with putting themselves first in this process after subordinating their interests for the overall good of the company for so many years.

So we quickly see that the exit planning process encompasses a complex decision about what you want, who can help you get there, who will replace you as owner, what impact your decision will have on others, and will you be fulfilling your personal goals with your plan – ‘complex’ indeed.


ID-100165237A Complex Transaction

Successfully Executing Your Exit Plan

After clearing the high hurdle of deciding on your optimal exit path, the next step is to successfully navigate another level of complexity – the exit transaction itself.  Let’s examine a few of the components of this transaction to put it in better perspective.

Timing Your Exit

Aligning your personal and business readiness for exit with economic conditions that favor a successful exit (such as availability of bank financing, interest rate levels, higher value due to greater earnings, etc.) can make an impact on the success of the exit.  For most owners, it is more difficult than ever to look into the future, seeking calm waters in this storm of an economy.  However, in order to navigate this complex transaction, you must first answer the question of ‘when’ is the optimal time for my exit?  Alignment of your personal, business, and economic timing is a tough task but a critical first step once you have decided on your exit path.

Who Is Going to Assist with My Exit?

After deciding on the ‘how’ and the ‘when’ of your exit plan, you also need to determine who is going to assist you with your exit.  Outside advice is critical to your success.  Ideally, owners will focus on two (2) points when choosing who to listen to for their exit – First, they will choose trained and experienced exit consultants to quarterback the process.  Next, they will demand objectivity and seek the counsel of those who are not promoting their own agenda to the owner.  Once again, this means that owners often have to turn to new advisors for something very personal.  However, without a guide in this process, it is very difficult to navigate the transaction on your own while continuing to successfully run your business.

Proceeds of the Exit – Will You Keep Enough of What You Get?

The structure of the exit can have a significant impact on how much of your hard earned wealth you walk away with. You’ll need to assess how those proceeds will be taxed and whether you will keep enough of what you receive to meet your financial goals. Without proper guidance and planning you can easily give away more than you needed to.  Further, you will also be signing some complex and heavily negotiated legal documents that impact your future rights / limitations as well as [potentially] the future receipt of some of the proceeds from the exit.

Concluding Thoughts

This list merely highlights the complexity of the decisions business owners face as part of their business exit as well as the general complexity of the exit transaction.  Therefore, it is critical to first know and adhere to the idea that exit planning is a process, not an event. When a business owner starts to think of their eventual exit as an event, similar to selling their home, they tend to put off the planning and think that they will ‘deal with it’ when it comes time. By not understanding these complexities owners often lose out on vital planning time which would allow for proper alignment of their business, its management and the overall protection of the hard earned wealth they have built within their business.

We hope that this newsletter helps you to understand the complexities of an exit decision and transaction and inspires you to begin your planning today.

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The information in this material is only as current as the date indicted, and may be superseded by subsequent market events or for other reasons. Statements concerning financial market trends are based on current market conditions, which are subject to change and which Payne Wealth Partners, Inc. does not undertake to update. While all information prepared in this document is believed to be accurate, any statements of opinion constitute only current opinions of Payne Wealth Partners, Inc., which are subject to change and which Payne Wealth Partners, Inc. does not undertake to update. Accordingly, you should not put undue reliance on these statements.

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