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Value Creation Blog

Why Business Exit Planning is Important

Posted by Josh Patrick

Business Exit PlanningSome advisors believe that you should start your business exit planning at the same time you start your business.  I'm not of that belief, but do believe that you should start planning for your exit when your business shows solid cash flow and you've turned fifty years old.

There are four ways you can leave your business.  They are:

  • You can sell the business to a third party (an outsider).
  • You can transfer the business to family.
  • You can transfer the business to your managers.
  • You can liquidate the business.

There is a fifth option that doesn't involve transferring ownership of the business.  The fifth option is changing your relationship to the business and moving towards what we call passive ownership.

In my opinion the optimum situation is for private business owners to put themselves in a position of having the ability to transfer the business to whom they want, when they want, and for a fair price.  For this to happen, the owner has to take certain steps before they get ready to transfer or change their relationship to their business.

Some of the actions that are important are:

  • Developing key employees who can run the business on a day to day basis.
  • Having a dashboard that shows you the key performance indicators and what the trends of those indicators are.
  • Put systems in place where operations are systemized, much in the way franchises have operations manuals.
  • Develop a level of profitability and cash flows that allow you to step aside and hire competent management.
  • Have a compensation system in place that rewards managers who help improve key performance indicators of your company.
  • Develop a stay bonus that encourages key people to stay with your company.

Taking the time to work on these issues in a strategic manner not only helps you position your business for transfer, but will increase the current operational value of your business.   Business exit planning is about making your company better today as well as getting it ready for transfer in the future.

What have you done to get your business ready for transfer?  What do you see as the biggest gap you have in any exit planning you've done?

Josh Patrick

Access your complementary Exit Planning Assessment.  This assessment provides a coaching call on 18 key areas a buyer would look at in your business.  You will have a call with no charge as well as a report that outlines a projected value of your business, the gap you could fill and strong and weak parts of your business. This assessment and report just might help you stay out of the need to do an earnout when you sell your business.  Click on the button below to start the Exit Planning Assessment process.

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Securities and Investment Advisory Services offered through NFP Securities, Inc. (NFPSI), Member FINRA/SIPC. Stage 2 Planning Partners and NFPSI are not affiliated.

This article is published for residents of the United States only.  Registered Representatives and Investment Adviser Representatives of NFP Securities, Inc. may only conduct business with residents of the states and jurisdictions in which they are properly registered.  Therefore, a response to a request for information may be delayed.  Not all of the products and services referenced on this site are available in every state and through every representative or advisor listed.

Topics: value creation, exit planning, business exit planning, Strategic Thought

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