Selling A Business? Why Comprehensive Exit Planning Is So Important

When it’s time to sell a company you’ve worked hard to build, success means a lot more than just getting a big sale price. It’s also important to make sure you walk away with as much of that money as possible, and that you protect and manage those assets so they will continue working for you for years to come.

Comprehensive exit planning can help you achieve all these goals.

What is Important When Selling a Company?

Many owners looking to sell their companies are focused on one thing—getting the best price. That could be a big mistake.

While price is important, it’s not everything. Other important factors include maximizing how much the owner and his or her family actually “take home” from the sale, and what they do with that wealth.

These and other issues fall under the broad umbrella of comprehensive exit planning—a type of advanced-level planning that a growing number of successful business owners use when it comes time to sell their businesses.

Selling a business is usually one of the most significant transactions in a business owner’s career. In some ways it marks an ending, but it’s also an important beginning, when the owner is able to “harvest” the value they have created to generate wealth that can be used to improve their lives and realize their dreams.

If you are considering selling a business, follow these guidelines to ensure the sale is a successful one.

Be Comprehensive

If you are a business owner, the starting point of comprehensive exit planning—which encompasses the sale of the business itself as well as strategies and solutions for personal wealth maximization and family wealth protection—is identifying your goals and objectives.

Think about what you want the sale of the business to achieve, and what you want the next stage of your life to look like—both factors are key to determining how you approach comprehensive exit planning.

At this initial stage, going through a discovery process with a financial professional can be extremely helpful.

Once your agenda is set—keeping in mind you will likely refine it over time—you can move on to elite wealth planning and corporate exit planning.

Elite Wealth Planning

Elite wealth planning is typically focused on the personal side of wealth. It is a comprehensive planning process that involves technical expertise, legal strategies, financial products, and personal and emotional components such as your personal priorities and everything and everyone that could be affected by the wealth planning.

Elite wealth planning often has two main goals:

  1. Minimizing taxes. A financial professional can help come up with strategies to lower, or even eliminate, the taxes you pay on the sale of your company.
  2. Protecting assets from lawsuits. It’s crucial to put protections in place to insulate your company and your personal wealth from unfounded and frivolous lawsuits from people would try to take it unjustly.

Corporate Exit Planning

Running a company and selling a company are two very different skills, and many business owners are excellent at the former but inexperienced at the latter. Because of this disconnect, many business owners make mistakes when selling a business because they do not know how to maximize value.

The answer is corporate exit planning, which acts as a strategic guide for selling your business, including the sale itself as well as the owner’s goals and concerns about the sales process.

For the best results, this planning should be started well before a sale—depending on the nature of your company, it might take months or even years to make sure all the pieces are in place to generate maximum sale value.

There are a number of steps to creating a strong corporate exit plan, including:

  • Valuing your company. There are several ways to determine a company’s worth. Valuation is part science and part art.
  • Identifying drivers of business value. These are the aspects of your company that are attractive to potential buyers. They become important in marketing the company and negotiating with the prospective buyer.
  • Leveraging value enhancement possibilities. You should take actions that enhance the company’s valuation, including fixing management problems, locking in customers, and eliminating any personal expenses that are being run through the company.
  • Analyzing the exit options. There may be many types of potential buyers. Examples include family, senior management, competitors and private equity firms. It’s important to evaluate the possibilities and implications of each option.
  • Strategically deciding when to sell. Finding the best time to sell depends on a number of factors—macroeconomic, the business cycle, and personal circumstances. Part of your corporate exit plan should be determining when all these factors are favorably aligned.
  • Effectively marketing the company. Marketing can play a major role in selling a company. The ability to identify a larger number of interested buyers, for example, can create a competitive environment that can drive up the selling price of the company.

Revisiting Your Plan After the Sale is Complete

Selling a business will change your life, and it’s then that elite wealth planning becomes most important. Your change in financial circumstances may require an upgrade of your estate plan, or a restructuring of your asset protection plan.

Then there’s the large pool of liquid assets that the sale probably created—assets you must now decide how to manage. If you lack the expertise, it is critical to identify skilled professionals who can invest your wealth in line with your goals and objectives.

Other issues that become important after the sale include an increase in philanthropy, which means a need for charitable planning and the formation of private foundations, donor-advised funds and other philanthropic vehicles.

Take Action

Ultimately, a comprehensive exit plan will accomplish four things:

  1. Determine what is important to you—your goals and objectives.
  2. Ensure you get the best price for your company.
  3. Make sure you walk away from the sale of your business with the most after-tax money possible.
  4. Enable you to effectively manage the proceeds and protect your wealth after the sale.

If you are thinking about selling a company, contact your financial professional to discuss any issues or concerns you might have. Being prepared with some advance planning might be valuable to you when the time comes to exit.