2024 ExitReadiness Checklist

As a business owner, your future exit is a significant event. That's why we publish the "Exitreadiness Checklist" annually to assist you in planning.

DECIDE WHERE YOU WANT TO GO. 

Establish Clear Goals and Objectives for Exit and Your Life After Exit.

• When do you want to leave the business? Whom do you wish to transfer/sell the business to?

• What are your values-based and legacy exit goals?

• What is your post-exit life plan? Business owners often regret leaving when they lack a plan for life that replaces the sense of purpose and meaning they experienced in building their business.

• Update your Personal Financial Plan. Find out how much $$$$ you will need post-exit to do all you want to do. Is there a gap?

ASSESS BUSINESS AND PERSONAL EXITREADINESS. 

Without Accurate Data, All Planning Becomes Meaningless.

• Get an accurate Estimate of Business Value. If the business is your largest asset, shouldn't you know what it really is worth to potential buyers?

• Assess your business Value-Drivers and areas of Risk.

• Review your Business Continuity Plan for life transitions and unexpected death or disability to include written instructions. Co-owners should include a review of their Buy-Sell Agreement to ensure alignment with the current goals of all owners.

• Review your Estate Plan to ensure alignment with exit goals.

DESIGN AND IMPLEMENT A PLAN. 

Build Transferable Value and Enjoy a Future Exit on Your Own Terms and Conditions.

• Which Exit Route will best accomplish your goals? Sale to Third-Party | Sale to Insiders | Transfer to Family Members | Sale to ESOP | Absentee Owner.

• Focus on growth and profitability today. Today's profitability and growth plan is at the core of tomorrow's successful exit plan.

• Strengthen business value drivers. An owner with a sellable business will have more freedom in life and options for exit.

• Update a strategic financial plan for business growth.

• Do you have the right Team of Experienced Advisors in place for your plan design and implementation?

• Who will manage the exit planning project - you, an advisor, or an experienced exit planner?

In 2024, it's crucial to start planning and seek assistance if you haven't already. If you wait until the last minute to plan your exit, you may not attain your goals for life after the business. Remember, you may not be aware of everything you need to know, and ignoring this fact could have negative consequences, just like in other aspects of life.

Below are suggested next steps:

Contact Us Today for a No-Obligation Exit Planning Exploratory Meeting. 

Take the Free ExitMap Readiness Assessment and get Online Learning and Resources at exitreadiness.com.

The Achilles Heel of Wealth Planning for Business Owners

Small to mid-sized business owners pour themselves into building a valuable business, and if they have a retirement strategy, it likely includes “selling the business”. 

Many business owners have a Wealth Advisor who diligently seeks to ensure the owner has a plan for that “Next Act” – when they sell the business.  And as I speak to Wealth Advisors, a common data point is that for the majority of Business Owners,  the business is often a major portion (80%+) of their portfolio.  So,  the retirement plan is:

1.     Run the business and invest in your 401K and

2.     Sell the business to fund retirement.

Yet – there is an Achille’s Heel to this plan.  

When asked how the value of the business was determined, advisors often say “The Owner told me the number”.   And when we dig a little deeper, that value the owner passes on is often not based on an outside valuation/estimate but on conventional wisdom, hearsay, their friend’s business, or a simple gut feel.  A full 80% of the Wealth Advisor’s planning is not based on objective data, but on a gut feel!  Unfortunately, if that gut feeling is wrong, it can be too late to correct it. 

Basic Exit Planning is a key to protecting against this threat and ensuring that plans are based on reality.  Several key facets of Exit Planning support sound wealth planning, including:

1.     Establishing business value through a 3rd party analysis through a formal valuation or estimate of value.  This gives an objective number for planning.

2.     Assessment of business quality – giving an objective sense of whether the business is sellable.

3.     Plan for value creation – if there is a value deficiency, exit planning focuses on enhancing business value, including correcting weaknesses and planning for growth.

4.     Clarification of Exit Options allowing an owner to understand and choose an optimal exit path that maximizes the ability to meet financial and non-financial goals

5.     Coordination with Wealth Advisor, Tax Advisors, and other professionals to develop tax-efficient strategies for wealth planning, as well as plans to accrue wealth prior to sale.

6.     And perhaps most importantly, clarity of the reality of the situation.  If the news is bad, at least it isn’t a surprise and plans can be made accordingly.

We recommend:

1.     Team up with a wealth advisor who routinely works with business owners and understands your unique challenges.

2.     Establish the value of your business with a 3rd party estimate of value/valuation.

3.     Consult an Exit Planner to understand your exit options.  

4.     Consult your CPA to understand the tax implications of those options.

5.     Work with your advisors to accrue wealth while you own the business. 

Invest 12-15 minutes today in the FREE ExitMap® Assessment and get a 12-page report scoring you in four key exit planning areas: Finance, Planning, Revenue/Profit, and Operations.

How Can A Charitable Lead Annuity Trust (CLAT) Help Me Attain My Business Exit Goals?

Minimizing taxes, based on our experience, seems to be a “core value” shared by most, if not all, business owners. And, seldom are they more cognizant of potential tax burdens than when transacting a sale of their business. Many owners are also characterized by generosity toward others through charitable giving.

A CLAT, or Charitable Lead Trust, is an Irrevocable Trust designed to provide financial contributions to one or more charities for a specified period of time, with the remaining assets eventually being distributed to family members or other beneficiaries. A CLAT also provides an owner with estate and income tax benefits that can be particularly helpful in the year of a business sale. For example, our fictional business owner Sarah successfully sold her business this year. Following are a few key data points:

• The payout in the year of sale is significant as she is in control exiting on her own terms and conditions. She built a sellable business.

• As a result of the large payout this year, she also has income and estate tax problems. Her exit goals include minimization of both income and estate taxes.

• Not only has Sarah been impactful through her business, but also through her generous and strategic giving to favorite charities through the years. She wants to increase giving with sale proceeds.

• Along with personal values that she wants to transfer to heirs as part of her legacy, she also has financial legacy goals. So, she would like for a portion of her charitable trust assets to eventually return to her family and beneficiaries.

• Due to her comprehensive planning process, Sarah has been able to sell her business on her own terms and conditions and have strategies in place to accomplish her tax minimization, charitable giving, and legacy goals — one tool playing a role in her strategy is the Charitable Lead Annuity Trust (CLAT). Sarah’s Charitable Lead Annuity Trust will provide her with both income and estate tax benefits, and work to accomplish her charitable and legacy goals.

If you’re a business owner like Sarah in the year of selling your business and have goals of minimizing estate and/or income taxes, charitable or philanthropic goals, and financial legacy goals, establishing a CLAT could play a key role in your comprehensive plan. Also, the current interest rate environment is particularly suited for CLATS as they are most effective when rates are low.

Check with your estate planning attorney and/or CPA, or contact us to see if a CLAT would be the right strategy for you. You can also learn more in our ExitReadiness® PODCAST episode with Estate Planning Attorney Jonathon Morrison of Ryan Frazer Goldberg & Arnold.

Invest 12-15 minutes in the FREE ExitMap® Assessment and get a 12-page report scoring you in four key exit planning areas: Finance, Planning, Revenue/Profit, and Operations.