Wise Wealth Management

Dennis Covington | Principal

Insights on the keys to enjoying a "healthy wealth".

Business Owners and Exit Plans

July 2008

Because we are intimately involved in our clients’ financial lives, we get a first-hand look at the planning techniques that really make a difference in people’s peace-of-mind. For business owners, I don’t think there is any thing I have seen that has a greater positive impact than a sound succession (exit) plan. Conversely, nothing can complicate a business owner’s life – and the lives of his or her family – like the absence of such a plan.

In my experience, business owners are often so busy running their companies that they don’t take the time to draw up a strategy to do what, ultimately, is the main reason they have the company in the first place: To turn their equity into a pool of investable assets they can live on the rest of their lives. Instead, many business owners limp to the finish, exhausted and needing to sell their company for far less than what they should have earned for their long years of work. And in the event that the owner suffers a premature death, the family often gets drawn into hopelessly complicated ownership issues at a time when they have no emotional strength to do so.

A good succession plan provides a way to avoid all of that. An exit plan is not only a set of mental notes about how one should pack up and move on. It is a way to focus an owner’s thinking about four key areas:

  1. Personal legacy
  2. Protecting family & employee interests.
  3. Post-retirement dreams and visions.
  4. Wealth creation as opposed to just collecting a salary.

An exit plan isn’t born in a day. In fact, I think it’s wise for business owners to come up with an exit plan when they start a company if possible, and if not, then within 3 to 5 years of the date they’d like to exit. I like to start with six key questions that never fail to get the discussion going:

  1. How many more years do I want to run this business?
  2. What’s the optimal way to get rid of the business when I’m ready to go? Do I want to sell it, transfer it to family or associates or just close it down?
  3. What if I got a fantastic offer on the business tomorrow? What would I do?
  4. How do I communicate my wishes and ideas with my spouse, kids and other family members with a stake in the business?
  5. What about my employees, clients and customers? How do I protect them if I die or decide to leave?
  6. How much money do I want in my life after my business, and what would I do with it?

An exit plan allows you to not only identify the conditions under which you would sell your business, but can help you change your whole career or life in the process. Often times we find that when we drill deeper on these issues, the business owner’s real interests and goals are in conflict with the way there are running their company and their role. The truth is that no one has to stay in the same industry – or company – for life, and with an exit plan, you can leave open the possibility for an endpoint that will allow you to travel, do philanthropy or any number of new activities in business or other walks of life.

Email A Friend Print This Article