CPA & Business Advisory Blog

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The Benefits of Exit Planning

Developing an exit plan is the most important thing you can do to protect the value of your business. According to a recent Exit Planning Institute survey of business owners:

  • 76% plan to transition their business within the next 10 years
  • 83% either do not have a transition plan in place, whether they plan to sell to an internal buyer or to an external third party
  • 40% of respondents do not have a plan that covers a forced exit (illness, death, etc.)

The same survey showed that the number one reason business exits fail is due to a lack of planning on the part of the owner. Without a predetermined exit plan, you will probably undervalue your company and leave hard earned wealth on the table. You’re more likely to pay too much in taxes and lose control over the process by being reactive, rather than proactive.

Think about it, most business owners spend more time planning their family vacations then they do planning how and when to exit their business. Rather than being proactive, most business owners are reactive and “forced” to sell because of burnout, health issues, marital problems, or business conditions without the time to prepare correctly. As a result, most business owners exit their companies at the worst time possible.

Ask yourself:

  • How attractive is my business from an outsider’s point of view?
  • How ready is my business to transition?
  • Have I mitigated business risks?
  • Are we focused on maximizing value or generating income?

A well-designed and implemented exit plan is a powerful tool that enables you to:

  • Control how and when you exit
  • Create a strategic direction for your business’ growth
  • Maximize company value in good times and bad
  • Ensure the future worth of your business
  • Minimize or eliminate capital gains taxes
  • Have strategic options from which to choose
  • Reduce stress and uncertainty for yourself, your family and employees
  • Achieve your business and personal goals
  • Facilitate retirement when you are ready for it
  • Create a smooth transition for your management team or family members
  • Ensure the survival and continued growth of the company
  • Reduce or defer the potential tax impact on your estate, spouse or family

The greatest benefit to business owners who have gone through the exit planning process may be the peace of mind that comes with knowing there is a plan in place to help ensure they are meeting their business, personal and financial goals and can exit the business profitably.

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