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The Three Things Every Exit Plan Must Consider

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Key Takeaways

·         An owner must determine their own financial readiness to retire: how much money do they need to retire comfortably?

·         In addition, an owner should understand the current value of their business and correlate that with their financial readiness.

·         Finally, owners need to consider their own personal readiness (i.e., non-financial aspects of any succession) and ensure their exit plan has adequately addressed these matters.

An Integrated Exit Plan

Exit planning is a complicated process that has many moving parts to make it turn out successful. From a big-picture perspective, though, all owners need to consider three key things to optimize the succession of their business:

i)                   Financial readiness;

ii)                 Business readiness; and

iii)               Personal readiness.

Addressing all three adequately in a written and holistic plan is necessary for an optimized exit. Let’s take a deeper dive to understand why this might be.

Step 1: Financial Readiness

How much do you need to retire? Have you sat down with your wealth advisor or financial planner to assess how large your retirement portfolio should be? How much do you need to enjoy a comfortable life to which you are accustomed? If you have not performed this exercise (or you have yet to even select a wealth advisor or financial planner), then this is really the first step you should take in the exit planning process. Why? Because completing this step first will have a large part to play in how the rest of your exit plan is constructed.

Step 2: Business Readiness

The next part of the exit planning process is to assess the value of your business. This is important for a number of reasons:

·         You need to correlate the current business value with the retirement number you calculated in Step 1. Is there a gap between what your business is worth and what size of portfolio is required for your retirement (keeping in mind taxes and transaction costs)? This is called the value gap and needs to be addressed.

·         If you ever get an unsolicited offer to buy your business, it’s difficult to assess how attractive it is unless you know what your business is worth right now.

·         You can start to embrace a value creation mindset that helps you focus your business strategies on enhancing value, not just tax minimization.

·         You can not only better understand the transferability of your business but actively seek to improve it.

In addition to assessing the value of your business, it is also important to understand how your business performs compared to your peers. Companies that are relative high performers will have higher valuations relative to laggards in industry. More importantly, high performance equals more options and higher satisfaction in running your business.

Step 3: Personal Readiness

The last aspect of the exit planning process that must be considered by owners is your own personal readiness to leave your business behind. Lack of thought into this area has torpedoed many potential sales, often because the owner is uncomfortable with what their role will be in the post-exit life. Other aspects that need careful consideration are:

·         Importance of family

·         Existing employees

·         Family or community legacy

·         Post-exit philanthropy

·         Staying involved with the business after exit (potentially as a consultant or minority shareholder).

The need for integration

Traditionally, exit planning has either been done in silos where the retirement planning, estate planning, and the ultimate transition have been done by separate teams who don’t necessarily talk to each other. This can result in a less than satisfactory solution for the owner. For example, the business when sold is worth less than the owner anticipated, and now the after-tax proceeds fall short of what the owner required to live comfortably. This either requires the owner to now adjust their retirement plans or find new sources of income to top up their retirement portfolio. Similarly, failure to consider some of the non-financial personal readiness issues may either derail attempts at successfully transitioning their business or result in a great deal of regret upon the eventual transition. Lastly, a failure to address the business readiness of your business may either result in a lack of transferability or leaving potential money on the table. While there are no guarantees for a perfect transition, planning years ahead of time using a holistic approach will minimize the risk of a suboptimal succession.


When should an owner start to plan out a comprehensive exit plan? At a minimum, an owner should map out their exit strategy three to five years before their planned exit. However, because life often throws curve balls at us (hello COVID-19!), the reality is any owner starting a business should also consider their eventual exit since exit planning is simply good business strategy. So, if you don’t have a comprehensive and holistic exit plan, you should start planning one now. It does not have to be written in stone since the plan may be revised from time to time as your business, your goals, and your preferences change over time. However, mapping out a strategy will ultimately result in an improved business, which can result in more options for the owner, a more enjoyable business to run, and a more successful exit. Remember, every owner will have to exit their business eventually. It’s up to you to decide how you want to do it.