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Exit Planning

Multiple studies indicate that 50%-90% of a business owner’s net worth is made up of the business itself. Here are some other interesting factoids:

“Even though nearly 70% of family businesses would like to pass their business on to the next generation, only 30% will actually be successful at transitioning to the next generation.”

Source: “Mass Mutual American Family Business Survey, 2007”

“47% of middle-market business owners 55 years and older are interested in selling their businesses within three years and yet over 90 percent of business owners have not initiated the planning process.”

Source: “Bain Surveying Inc. Survey, Sept. 11, 2008”

Failing to plan = planning to fail.

Notice the dates on these surveys. How many of these business owners do you think are just now finally able to sell or pass their business in style? How many do you think were forced into a compromised situation due to the recession, health issues, or both?

Multiple advisors will play a part in this process (accountants, attorneys, bankers, business consultants, valuation experts, and insurance agents), but it’s critical that you have a financial strategist who can either play nice with your existing team or help you put one together. Here are some of the key questions a financial planner savvy in exit planning should be helping you answer:

  • How much of a nest-egg must I have to be able to enjoy my current lifestyle or better throughout retirement?
  • What are some preparations I can be making now to maximize value and substantially reduce the overall taxation on the transfer of my business (whether it’s a sale to a third party, my employees, or a transfer to my heirs?)
  • Can some of these same preparations support my new activities after the sale and perhaps even my long term legacy aspirations?

If you’re a business owner, every tax and financial planning discussion you’re having should somehow tie into an overall exit planning conversation. Is that the case for you?