Exit planning has become a new buzzword for those who consult to Baby Boomer business owners. Business brokers, wealth managers and other professionals are adding “exit planning” to their marketing messages.  It’s a logical reaction when over 5,000,000 Baby Boomers are preparing to leave their businesses.

Not surprisingly, when a business broker creates an “exit plan,” it usually involves listing the business for sale to a third party. An attorney’s planning focuses on the legal documents that allow the transition of the assets of a company to new ownership. An accountant or financial planner will look closely at tax and inheritance issues, and an insurance broker offers products that reduce the risk of interruption or disaster.

Entrepreneurs can have many reasons for wanting to launch and own a business, but typically "freedom" is a key motivating factor.  And, when your business is sellable, not only do you enjoy increased freedom today, but also in the future when you realize more options for your eventual exit. 

Our engagements are mostly with business owners who want to design and implement a plan for their eventual transition/exit from the business.  However, on occasion, we are contacted not by the business owner, but by an inside employee who has questions about potential ownership, or their future in a closely-held business.  Insiders typically include key employees, a child of the business owner, or a co-owner. 

An initial and essential step in preparing for your eventual exit from your business successfully is a personal financial GAP Analysis calculating how much money you will need to attain your goals, for the rest of your life post-exit.

Too often business owners rely on a “back of the envelope” or subjective estimate of business value for this calculation, which results in planning that is not helpful and lacks integrity.  And, as the business is often the largest asset in an owner's investment portfolio, it is particularly important.  Meaningful planning requires accurate data.  

Our past client and friend Peter Giglio, Sr, owner of Gaithersburg Garage Door had built a profitable and reputable local business over twenty-plus years in Montgomery County, MD.  Pete and his team were focused on being the best garage door dealer, installer, and service company in the Washington DC area.

After convincing a prospective client they need to begin today designing and implementing an exit plan, they might have the following response…

 “Ok, I get it…I need to start planning today…I agree.  But why do I need you?  You’re just one more added expense.  Why wouldn’t I just ask my CPA or Attorney, who I’ve known for 20 years to lead the process?  I’m going to need them in the process anyway…”.  Our response would go like this, “Well, that is true…you might not need us.  You can ask one of your current advisors…and they may be the right choice if they have comprehensive exit planning as a practice and area of focus.  But, consider this also -- are you going to most benefit from your CPA focusing mainly on the tax implications of your exit, or your Attorney focusing mainly on legal and risk management issues…or having them also manage all aspects of the planning process?”

As a business owner you pour your heart into your work and it has become part of you. But at times, the business you have carefully nurtured for years can become a burden - there's a part of you that yearns to do something else - travel, spend more time with family, enjoy more leisure, or even start another new business. You are confused. 

So when it comes to considering the future of your business, where is your heart?

My partner and I met with the Managing Member of a Private Equity Fund recently who is currently seeking to make a new investment in a business with revenue between $2 million and $20 million. He was referred to us by someone thinking there could be synergy between our firm and his, as we are regularly in contact with business owners desirous of selling their business.  

As an entrepreneur who has spent years working to grow a privately held business, you are left with many questions about transitioning to the next stage of your life.  The biggest question usually is, "what is the most efficient way for me to sell my business?"  Since the increase in capital gains taxes and surge of baby boomers retiring, the use of Employee Stock Ownership Plans as a monetization strategy has been a growing trend.