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. As advisors, we can help business owners overcome this challenge by changing the way they think about exit planning. Instead of treating the exit as a singular event, we advise business owners to view it as an integral part of the business.

A business transition will have far-reaching impacts on a business owner's life before, during and after the sale. Just like the other aspects of a business that make it successful, an exit plan is something that requires time, discipline and a team of professionals to execute it effectively.

Why Is Exit Planning So Hard to Face?

The very idea of exit planning can be daunting for business owners. For many, it seems like an unnecessary burden, stealing precious time and attention from the demands of their growing business. Some are reluctant to engage in exit planning because it's too hard to come to terms with the idea that they will someday need to separate from their company. Thinking about severing what is surely a deep, emotional attachment to a company that has played such a large role in their personal identity is not an easy task.

It's no wonder that so few business owners have a solid plan in place. The Exit Planning Institute's 2013 State of Owner Readiness Survey revealed that when it is time to sell, 70–80% of businesses haven't prepared enough to receive a desirable price, or any buyer at all. Among business owners who do find a buyer, 75% came to deeply regret selling within a year of the sale because they hadn't fully considered their financial needs or prepared emotionally for their new lifestyle. But the reality is that all business owners must exit the business eventually. The sooner they start planning, the more successful that transition will be.

How to Make Exit Planning a Business Strategy

When it is time for business owners to leave their business, they want to feel financially and emotionally prepared. Exit planning, therefore, is not an event that begins when the owner has decided to sell or transfer. Rather, it's a strategy to help them navigate the whole process — and advisors play a critical role during each stage.

In addition to determining what the business is worth, the owners will need a comprehensive financial plan. It's essential that business owners take a big picture approach — encompassing their financial needs after the sale, what they may want to leave to family members or charities, and how all of this may impact their legacy.

It's a complex process, and a team of professionals with individual expertise in financial planning, business valuations, taxes, estate planning and investment management will be key for long-term success. Helping your clients assemble this comprehensive team will make for a much smoother transition.

Preparing for Life After the Sale

A critical part of this process is the need for a detailed plan for life after the transition — and business owners still require the support of their advisors during this time. Some important questions to ask the business owner are:

  • How will you spend your time?
  • What kind of philanthropic goals do you have?
  • What will your role be within your family, as well as your community?
  • How will your departure affect your firm and your employees?

Having a post-sale plan should help the business owner avoid feeling any regret over the decision to leave the business.

In addition to deciding how to spend their time, business owners also face the challenge of thinking about their wealth differently. Many business owners are accustomed to putting all of their wealth back into the business after meeting their daily needs and lifestyle requirements, which comes with a certain level of stability. Turning a business's profits, losses and revenue into an investment portfolio, subject to the ups and downs of the markets, can be a daunting and emotional process.

It's important to be aware if this will be a challenge for your client. Educating the former business owner on what to expect, and the best ways to navigate market volatility, will make it much easier for them to stay calm and maintain their long-term wealth plan.

Supporting Your Clients at Every Step

Exiting a business is likely to be one of the largest, most critical transactions of a business owner's professional life, and procrastination is one of the biggest threats to effective exit planning. The right team of advisors can help ensure that business owners start planning early and exit on their own terms, rather than someone else's. And by offering support at each step of the process, advisors can guide business owners through a successful transition and prepare them for life after the business.

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