Entrepreneurs looking to sell their companies often focus solely on corporate exit planning, aiming to maximize the sale value. However, this narrow approach may lead to missed opportunities and potential pitfalls. Selling a business involves more than just getting the best price; it also encompasses factors such as how much money the entrepreneurs and their families will walk away with and addressing concerns like job security for senior managers. Comprehensive exit planning, an advanced-level strategy, addresses these broader issues and is becoming increasingly popular among successful entrepreneurs.
Why Comprehensive Exit Planning Matters
Selling a business is a significant event in an entrepreneur’s career, representing the culmination of years of effort and value creation. While some business owners prefer transferring ownership to family members, situations may arise where selling to outsiders makes more sense, such as when no family member is capable or motivated to continue the business, health issues hinder family members’ involvement, or an exceptional selling opportunity arises.
Comprehensive exit planning expands beyond corporate exit planning by integrating personal wealth maximization and family wealth protection. The central focus shifts to optimizing family wealth, making it essential to identify goals, objectives, and expectations for both the owner and family members. Collaborating with a financial professional during a discovery process can be invaluable in this stage.
Elite Wealth Planning
Elite wealth planning focuses on personal wealth and combines technical expertise, legal strategies, financial products, and the human element, considering everyone and everything important to the owner. Entrepreneurs engaging in elite wealth planning typically seek to:
- Structure company ownership to minimize taxes: Elite wealth planning explores strategies to reduce or eliminate taxes on the sale of the company, tailored to the owner’s specific circumstances.
- Protect assets from lawsuits: Many entrepreneurs overlook protecting their personal wealth from unfounded lawsuits, which becomes crucial when transitioning a family-run business into liquid wealth.
Corporate Exit Planning
Corporate exit planning is a strategic approach to selling a business that aims to maximize its value. This process should commence well in advance of the sale, potentially taking months or even years to ensure all elements are in place to achieve the highest sale value. Key steps in corporate exit planning include:
- Valuing the company: Determining the company’s worth through a combination of science and art.
- Identifying drivers of business value: Recognizing aspects attractive to potential buyers, which are crucial in marketing and negotiations.
- Leveraging value enhancement opportunities: Taking actions to increase the company’s valuation, from addressing management issues to securing customers and eliminating personal expenses.
- Analyzing exit options: Evaluating potential buyers, including family, senior management, competitors, and private equity firms, to weigh their implications.
- Strategic timing for selling: Considering macroeconomic factors, business cycles, and personal circumstances to identify the optimal time to sell.
- Effective marketing: Utilizing marketing strategies to attract a larger pool of interested buyers and create a competitive environment.
Post-Sale Considerations
After the sale, significant changes occur in the entrepreneur’s personal life and financial situation. Elite wealth planning becomes essential once again, potentially involving an estate plan upgrade and asset protection plan restructuring. Managing the substantial liquid assets generated from the sale requires expertise, and it’s crucial to identify high-caliber professionals to align investments with goals and objectives.
Other important post-sale issues include an increased focus on philanthropy as families may have more time and resources to support meaningful causes. This may necessitate charitable planning and the formation of philanthropic vehicles like private foundations and donor-advised funds.
Taking Action
A comprehensive exit plan serves four critical purposes:
- Focus on personal goals and objectives.
- Maximize the sale price based on predefined parameters.
- Maximize after-tax proceeds while considering the overarching agenda.
- Position the owner to manage and protect their wealth effectively after the sale.
Business owners with a comprehensive exit plan in place are well-positioned for success. Those without such a plan should seek guidance from financial professionals to address concerns related to selling their company or preparing for a future sale. Advanced planning can prove valuable when the time comes to exit the business.
Important Disclosures:
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.