Exit Planning is a Complex Decision and a Complex Transaction

Illustration by Janet Atkinson

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 and where you can find professionals to assist, you are empowered towards a more successful outcome. Let’s begin with the decision as a process, not an event.

A 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. 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 provide better ‘curb appeal’. There is not a lot of complexity involved and the financial and emotional impact on the sale of the home is more event-driven than process driven. A business exit is the opposite.

A business exit is best viewed as a process, and a complex process at that. The first part of this process is clarifying your personal and business goals; let’s begin there:

Being Clear on your Goals

The first step in making a solid exit planning decision is to be clear on your personal and business goals. Nothing is more critical to the process of an exit than gaining clarity on what will be a satisfactory outcome for the many people involved in your business and life. It is a challenging task to forecast how your future exit will impact your employees, customers, vendors, creditors, community, trusted advisors and family. Each of these groups of people are reliant on the decisions that you make and will clearly have varied responses. Beyond the goals are gaining an understanding of which options are available to best help you reach your goals.

How does an owner begin such a daunting evaluation? What are the initial questions to ask and who is available to assist with sorting this out?

We quickly see that the exit planning process encompasses a complex decision about what you want, who can help you get there, and what impact your decision will have on others; indeed a very ‘complex’ process.

A Complex Transaction

After clearing the high hurdles of determining your goals as well as deciding on which exit paths are likely to produce the overall best results, 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 have a meaningful impact on the success of the exit. 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 Your 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) areas 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 seek out experienced practitioners for the various forms of advice that they will need.

There are a variety of business and personal advisors that you will need for your exit transaction. Some consultants will come into your business to improve the value of your company before a transaction. Others will enter at a later time, to prepare the business to transact. And still another set of advisors will help you oversee your personal finances to help meet your personal goals.

Having access to this assembly of professionals is as important as knowing which ones you need and when to bring them into the execution of the plan.

Your Planning Team and Your Transaction Team
There will be some professionals who enter your life to be a part of your planning team. And there will be some who are a part of the execution or ‘transaction’ team. Moreover, some of the advisors will fill both roles.

The commitment to make is to the time and expense of these various professionals. Looking at these folks as investments instead of as expenses is the best perspective. You’ve spent a lifetime building the value in your privately-held business. A little additional investment will be needed to plan and execute your final chapter.

Concluding Thoughts
This newsletter 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 team 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.

Read more more about our exit planning services.