Exit Plan is actually Critical to a Company’s Survival
- May 20, 2017
- Posted by: marlenedubois
- Category: CPR Training
The owner/chef of a lucrative as well as also well established restaurant was diagnosed which has a terminal illness as well as also suddenly was unable to work. The business was highly dependent on the owner. While his bereaved wife struggled to run the business as well as also hire a replacement chef, food quality, service, profitability as well as also the reputation of the restaurant plummeted as well as also never recovered. When the lease came up for renewal a year later, she shut the business down as well as also walked away with nothing.
At the age of 66, the owner of a profitable construction company seeking to retire sold the business to his son, who was also an employee. His son had minimal savings so was only able to make a tiny down payment, as well as also the cost was discounted significantly. He also lacked the exceptional people as well as also leadership skills of his father. The son began clashing which has a key, more senior executive, who subsequently left the company to start a competitor, taking several additional employees with him. At the age of 70, the father began working full time again, seeking to salvage the business, as he was dependent on the sale proceeds for a comfortable retirement.
The two entrepreneurs above had something in common with more than 85% of tiny business owners – they never developed an exit plan.
Without an exit plan, a business could quickly be severely damaged by a sudden crisis, such an illness, death, divorce, partnership dispute or rapid change in market or competitive environment. Or a business may deteriorate gradually as the owner burns out as well as also neglects the business, or transfers the idea to a weak leader. Either way, the result is actually the same – greatly diminished business value. With tens of millions of baby boomers approaching retirement age, as well as also controlling trillions of dollars of private company wealth, the issue is actually becoming acute.
By contrast, private equity groups as well as also venture capital firms, perhaps the entire world’s most sophisticated owners as well as also financiers of businesses, rarely fund or purchase a business without first having a formal exit plan in place.
So what is actually an exit plan? the idea’s actually a series of continually evolving as well as also interrelated plans which will help you address at least the following critical questions:
- What are your preferred options as well as also timing for exiting the business? For example, sale to outsider, sale or gift to family or employees, merger with competitor, buyout by a partner, etc.
- What family members are involved inside business as well as also what are their objectives?
- What are your financial objectives as well as also retirement plans?
- What is actually the value of your business today?
- What key actions are necessary to improve business value as well as also position the idea for sale at the optimum after tax amount needed to achieve your financial objectives?
- What actions are necessary to manage estate, trust as well as also tax issues you will face through retirement as well as also beyond?
- What actions, programs as well as also agreements are necessary to ensure continuity of the business inside event of departure, death, or incapacitation of any of the owners or key executives? Examples include training programs, system development, buy/sell agreements, key man insurance, as well as also non-compete agreements.
- Who will replace you or additional owners upon departure? Are any current executives as well as also/or family members capable of doing so, as well as also if so, what additional skills, training, licensing, etc. are needed? If not, what is actually the strategy for recruiting as well as also developing a replacement?
- What improvements inside business as well as also your role are needed today to preserve your quality of life as well as also your passion for the business?
Developing a comprehensive exit plan is actually a demanding task which generally takes 3-6 months to complete as well as also as long as 2 to 4 years to implement, depending on the complexity of the business. the idea will address a wide variety of intricate strategic, operational, financial, tax, human resource as well as also legal issues. While a primary focus is actually meeting the owner’s objectives, the idea should ideally reflect the desires as well as also concerns of all important stakeholders, including a spouse, children, business partners, additional shareholders as well as also employees, as well as also in some cases customers, suppliers as well as also the community. Input should be gathered by key advisors, including your CPA, wealth planner, estate planner, business consultant, insurance broker, appraisers as well as also mergers as well as also acquisitions advisor.
An exit plan is actually decidedly not a fancy written report which sits on a shelf gathering dust. To have any meaning, the idea must be regularly updated to reflect improvements in your life, family, health, goals, finances, as well as also the business. the idea must be action oriented as well as also offer prescriptions which are implemented, not ivory tower theories. An ideal plan will take a long term view as well as also continually assess actual progress of implementation against the plan timetable as well as also take any necessary corrective action needed to keep on track with the plan.
If an exit plan sounds like a lot of work, the idea is actually. although having one can be the difference between your business shuttering when you depart as well as also leaving a legacy which endures for generations.
For more articles on exit planning, see