"Five Years From Now..."

We refer to it in the exit planning trade as the "perpetual five-year exit plan".  When asking a business owner when they plan to exit their business, the following is a fairly common response:  "Not sure but probably about five years from now..."  We refer to it as perpetual because it is also rather common to get the same response year after year from the same owner.  There can be numerous and varied reasons for the response, but a lack of planning is often primary. 

The problem is that if you don't start planning now, you and your business may not be ready for you to exit in five years, and it could end up being necessary for you to plan and wait for another five years in order to attain your goals.

Following is the "2018 Exit Planning To-Do List" we posted on Jan 1 as a reminder to get started and avoid the perpetual five-year plan.  Please contact us if you need help in designing or implementing your plan for a successful exit.

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 can often regret leaving when lacking 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 WHERE YOU ARE.  Without Accurate Data All Planning Becomes Meaningless.

  • Get an accurate Business Valuation.  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.  Co-Owners would include a review of their Buy-Sell Agreement to ensure alignment with current goals of all owners.
  • Review 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.  At the core of tomorrow's successful exit plan is today's profitability and plan for growth.
  • Strengthen business value drivers.
  • Update strategic financial plan for the business.
  • Do you have the right Team of Experienced Advisors for plan design and implementation?
  • Who will Manage the Exit Planning Project?   

Following are some easy next steps:

Contact Us Today for a No-Obligation Exit Planning or Value Building Exploratory Meeting.  Take our Free ExitMap Readiness Assessment and Value Builder Score questionnaire.  You could also visit exitreadiness.com for Online Learning and Education.

What Happens When a Sole Proprietor Dies?

In that, a sole proprietorship is entirely linked to the founder/owner, at the death of that sole proprietor the business cannot continue in its current form.  The business will either need to be shut down or the tangible and non-tangible assets sold to another individual or entity pursuant to the last will and testament.

A few of the potential challenges realized at death would include the business immediately losing value as the business is directly linked to the sole proprietor, valuation of the business assets, and enough liquidity so that the estate would not be required to sell assets at fire-sale prices in order to settle the estate.  Something that is often not fully considered by sole proprietors and their heirs is that, as in life, in death, there is not a separation of personal and business assets.  So,  the estate may be required to sell business assets in the same way they would personal assets in order to pay estate settlement costs.  Another challenge that often arises is the expressed desire of the deceased owner to sell the business assets at death to a family member, but the family member, who was hoping to eventually own the business, does not have the needed liquidity at the time to purchase the business.  And, of course, all of this, and more become even more challenging for survivors if the owner dies intestate, or without a last will and testament.  So, there are not a few challenges for a sole proprietor in planning the eventual distribution or transfer of their business interest at death.

If a sole proprietor has wishes or goals regarding the distribution of their business assets at death, and/or values-based goals such as family harmony, a well-thought-out written estate plan is imperative.  The owner may also need to give serious consideration to issues such as changing their business structure, providing additional liquidity at death, and the creation of a buy-sell agreement.  And, as it is true with all strategic planning, you cannot get started soon enough.

Consider contacting a qualified estate planning attorney for a review of your plan, and if we can be of service in helping you think through your goals and desires please contact us.

You Need To Know...But Do You Want To Know?

Have you ever heard the old saying, “What you don’t know won’t hurt you”?  Not sure why, or who it was in my life at the time who would say it, but I remember hearing it a lot when I was a kid.  Through the years I’ve found this saying, through personal experience and observation, severely misleading at best.  I wonder if the person who originated the phrase had “current hurt” in mind.  For example, I might not know my car has no engine oil and that the engine is going to die exactly a week from today – but today, because I don’t know it, it doesn’t hurt.  However, in a week when the car blows up and catches on fire, there is a lot that’s going to hurt.  So, what you don’t know, can absolutely hurt you, and often does…it simply may not be immediate.

Or, how about this…”You know you need to know…but you don’t know because you don’t want to know.”  And, maybe you don’t want to know because it’s easier not to know.  In other words, “I know I need to know…but I really don’t want to know because it could be costly and/or inconvenient.  So, I choose not to know.”   In our "engine oil" example, perhaps I noticed oil stains in the driveway, so I knew that I should check to see if there was oil in the car, but I chose not to because I didn’t really want to know – because I didn’t want to invest the time and $$ needed to put oil in the car.  For now, it’s easier not to know.  What ends up happening in situations like this?  Instead of investing a few minutes and a few dollars to add oil…I end up having to invest much time and money arranging for a new engine or buying a new car.  If we choose not to get the knowledge we realize we need, it can be extremely expensive and even devastating.

If you’re a successful business owner, your business is probably your biggest asset, and will play a key role in whatever represents success for you in the future (i.e., financial, values-based, or legacy goals).  You may understand there are things you need to know about how ready you are, and how ready your business is for you to leave on your own terms and conditions and successfully – but you’ve chosen to this point not to know because of the potential for added work and the additional requirements of time and/or financial investment…and because “what you don’t know, currently isn’t hurting you.”  It may not hurt now, but the hurt that comes later could much greater when you eventually leave your business when your financial, values-based, and legacy goals are not realized. 

Take steps now to expose reality and get the knowledge you need pertaining to your personal and business readiness for exit and then act on it.  And get help...because you don't know what you don't know.