Business exit planning: 5 steps to help get started

Exit from your business while maximizing return potential and maintaining continuity

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For a business owner, exit planning is all about being proactive and prioritizing the things you can control about transitioning away from ownership. A thoughtful exit planning strategy includes identifying and addressing personal, financial and business needs so you can confidently step away from a privately held business when and how you choose. Taking steps long before you’re ready to exit the business can help set you up for a successful shift to your next chapter.
An effective exit plan will:

  • Articulate your personal goals for the transaction as well as life after it closes
  • Identify your personal financial needs from a transaction
  • Highlight ways to increase the value and marketability of the business prior to a transaction
  • Identify a potential successor
  • Address the tax and legal considerations of a transfer of ownership
  • Provide a contingency arrangement

Why exit planning is important

Whether you’re starting to think about stepping away or if that’s years away, it’s never too early to think about your exit plan. Proper exit planning can inform business strategy by providing context for decision-making and can help improve the value and marketability of your company. Your exit plan may have implications for whom you hire, how you invest in the business and even how you finance operations. Even if it seems early, decisions you’re making today could impact your ability to exit the business on your terms.
There are other reasons to have an exit plan in place, such as:

Setting expectations

A well-crafted exit plan sets expectations for your company's future, helping you make informed decisions for short- and long-term needs. If your exit plan sets specific milestones in place, you know the business needs to meet them. Your business exit plan could also set expectations for any potential buyout offers.

Unexpected events

From sudden illnesses to divorces, unexpected events can occur. A business exit plan could help you prepare for unexpected events by setting up contingencies in case of a long-term illness, or by minimizing risk caused by uncontrollable external factors.

Succession planning

Succession planning is a key step in developing a business exit plan. Your succession plan sets expectations for key roles after you exit your business, helping smooth organizational transitions. A good succession plan also gives your business time to develop the skills of key employees for the eventual transition.

Five steps to help you start business exit planning

1. Build your professional team

At the center of your professional team is a financial advisor. They will be with you during the planning, execution and post-sale phases. They can help you articulate and quantify your goals for an exit, communicate those goals to your professional team and address a wide breadth of financial needs throughout the process.

In addition to having a financial advisor, you likely will benefit from having a well-rounded team of professionals to assist you, such as a tax professional, legal professional, commercial banker and business valuation professional. It is important to note that financial advisors cannot provide tax or legal advice, so these additional professionals on your team will help round out the advice you need.

Later, depending on your chosen exit option and the complexity of your business, you may want additional professionals on your team, such as a business broker, investment banker, specialty legal professionals, family business advisor, value advisor or employee stock ownership plan (ESOP) advisor, to name a few.
[include image from PDF of Edward Jones Financial Advisor. Alt text: Edward Jones Financial Advisor at the intersection of banking, tax, valuation, and legal professional.]

2. Determine how much you want or need from a business sale

One of the most important parts of an exit plan is determining how much you’ll need from the sale of your business to fund your desired lifestyle in retirement as well as your legacy goals. Keep in mind, though, that exiting the business doesn’t have to mean retirement. You may decide to:

  • Sell only a portion of the business
  • Sell the business but stay on to help manage or consult
  • Use the sales proceeds to start your next venture

To that end, you should envision how you want to spend your time after you exit the business, which can also help you determine whether you’re personally ready to step away. An Edward Jones financial advisor can be instrumental in helping you think through what life might look like post-exit and determine how much you may need from the sale of your business to meet your goals.

Be sure to add expenses into your budget that are currently being billed to the business — cell phone, vehicles, travel, health care, etc. Since you will be paying for those going forward, you’ll want to account for them.

3. Understand how much your business is worth

It’s important to have a reasonable understanding of the value of your company and what drives it. This will help you:

  • Know what your business is currently worth
  • Identify any gap between what you may need to fund your goals and what the business could potentially be sold for
  • Highlight ways to enhance the company’s value

Because it can take time to enhance the value of your business, we recommend getting a calculation of value at least three to five years prior to your planned exit. That said, anyone engaging in exit planning will likely benefit from it. Consider getting a new one any time the business has undergone meaningful changes that may affect its value.

4. Develop a strategy to close the gap between steps 2 and 3

Next, consider how you can close the gap (if it exists) between what you need (step 2) and what your business is worth (step 3). Again, your financial advisor can be instrumental in this step. You may consider working longer, reassessing your spending needs, saving more outside the business or looking for ways to increase the value of the business. Two primary ways to enhance the value of your business include:

  • Increasing the amount of profit the business generates. This can be done by increasing market share, introducing new product lines, increasing prices or reducing costs.
  • Improving the company’s intangible value. These are things like the depth and expertise of your personnel; the systems, tools, and processes that enable operations; and the relationship you have with your customers.

Improving these drivers of business value may take several years to achieve, which is why starting early is so beneficial.

5. Consider the successor who can best meet your goals

Succession planning is part of an effective exit plan. It’s the process of choosing who will take over ownership, management and leadership of your company once you step away. These responsibilities don’t have to go to the same person, but they can. There are important considerations and trade-offs to weigh when choosing a successor. There are generally two main categories of successors (also referred to as exit options) — internal and external. You could also choose to liquidate the company. Whichever direction you choose, there are important action steps you can take now to best position yourself and your successor for prosperity before, during and after your exit.

Which exit strategy is best?

The best business exit strategy is the one that meets your needs for your financial, lifestyle and legacy goals. 
If you aren't sure where to start, consider talking with a financial advisor. An experienced financial professional can assess your business's particular situation and work with you to develop an exit plan that aligns with your overall goals.

How Edward Jones can help

Every exit plan is unique, so there is no one-size-fits-all approach. An Edward Jones financial advisor can help you develop an exit plan that can help you transition from your business without disrupting operations. Contact a financial advisor to get started.

Business exit planning FAQs

How do you create an exit plan for a business?

Begin by developing a professional team, finding out how much your business is worth, determining how much you need from a sale to fund your lifestyle, and choosing a succession plan.

When should exit planning start?

You should begin exit planning several years before you intend to step away from your business. The more time you have to implement your exit plan, the better the chances are the transition can go smoothly.

Zach D. Gildehaus, CFA®, CFP®, CEPA® Senior Analyst, Client Needs Research

Zach Gildehaus joined Edward Jones in 2013. He is a business owner strategist on the Client Needs Research (CNR) team, where he focuses his research efforts on strategies for charitable giving and business owners.

Prior to CNR, he was a senior analyst in Investment Manager Research (IMR), where he spent more than six years covering both active and passive strategies across several asset classes.

Important Information:

Edward Jones, its employees and financial advisors are not estate planners and cannot provide tax or legal advice. You should consult your estate-planning attorney or qualified tax advisor regarding your situation.