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Exit Planning – The 6 Step Process

According to Gary Ford and Connie Bird, authors of “Life is Sales”, three common attributes of successful people are initiative, persistence and assertiveness.  It is these qualities that drive entrepreneurs to build successful organizations and it is these qualities that empower business owners to prepare for a voluntary or involuntary sale of their businesses through an exit plan.

 

To develop an effective exit plan the following 6 step process must be undertaken:
Step
Brief Description
1.
Goals Assessment
  • Identify business, personal and family goals
  • Provides a frame of reference for the entire plan
2.
Financial Needs Assessment
  • Quantify how much is needed (from the sale of the business) to achieve the goals
  • Considerations include annual spending, expected rates of return, inflation, life expectancy, etc.
3.
Business Valuation
  • Obtain a current business valuation – at least 3 to 5 years prior to exit
  • Identify and implement measures to increase business value before exit
4.
Exit Option Analysis
  • Assess the advantages and disadvantages of each exit option
  • Identify which exit option(s) will best accomplish the goals
5.
Net Proceeds Analysis
  • Calculate net proceeds to be received under each exit option based on various value/sale price assumptions
6.
Action Plan
  • Identify and prioritize specific tasks to be undertaken
  • Assign responsibility to individuals and identify timing of each task
  • Schedule regular meetings (e.g. quarterly) with those accountable to ensure progress
The exit planning process is a comprehensive process that addresses the business, personal, financial, legal and tax issues that are involved in exiting from a privately owned business.  When it comes to exit planning, business owners ultimately have three choices: (a) do nothing; (b) prepare the plan themselves; or (c) seek professional assistance.
To ensure an efficient process, business owners should give serious thought to the above noted steps before seeking professional assistance.  A team of professional advisors can provide real value throughout the exit planning process.  According to “RBC Business Succession Planning: Your Essential Road Map”, assistance from many of the following professionals may be required at some point in the process:
  • Family business advisor
  • Chartered accountant
  • Lawyer (corporate, tax, estate)
  • Business valuator
  • Insurance / financial advisor
  • Commercial banker
  • Business broker
  • Investment advisor / wealth manager
Knowing when to call upon experienced professionals to ensure that the plan is technically sound and will meet the identified goals is critical.
Over the next 6 weeks, I will discuss in greater detail each of the above noted 6 steps to developing an effective exit plan, highlighting how and when specific professional advisors can assist.
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