Exit Planning

Exit Planning is the key to maximizing the benefits associated with selling your business.  On this page, we break down business exit plans in an easy to understand format.  We discuss the following:

  1. What is exit planning
  2. The ROI of exit planning
  3. The exit planning process
  4. The 8 exit options
  5. How to build your team of advisors
exit planning

What is Exit Planning?

An exit plan is a comprehensive roadmap to sell and exit a privately held business.  While structured around the business, the process is a mostly personal process for the owners.  Exit plans address all business, personal, financial, legal and tax questions involved in selling a closely held, private business.

In addition to outlining a ‘planned’ exit, the plan also outlines what happens in the event of an ‘unplanned’ exit.  This roadmap should maximize the net sales proceeds of the business while addressing the owner’s personal and financial goals.  Depending on the complexity, an owner should expect a planned exit to take 3 to 4 years.

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The ROI of Exit Planning

The first important aspect of exit planning to understand is the benefit is both monetary and non-monetary.  The monetary benefit involves maximizing the net proceeds of the sale.  This involves planning ahead to reduce taxes and fees from the sale.  The non-monetary benefits include the personal benefits like control, achieving business and personal goals, reducing stress, and ensuring the business continues on as desired.

The Financial ROI

Minimize Taxes

There are a number of components to the financial ROI of building an exit plan.  While business sales price is important, the amount the owner keeps from the sale is more important.  The primary drain on proceeds is taxes: capital gains taxes, estate taxes, and income taxes.  Saving 10% on capital gains tax can equate to hundreds of thousands or millions of dollars for the seller.  With planning and guidance, a seller will drastically minimize, defer or even eliminate these taxes.  An overview of these strategies is a complex topic of its own so we won’t go into details.  Your team of exit advisors will advise you on your options.

Retirement Planning

Due to the demanding nature of running a successful business, many business owners don’t find time to manage their investments.  When an owner is selling in order to retire, exit planning plays a vital role in securing the owner’s retirement.  Identifying the amount of income and capital needed to provide throughout retirement is a complex planning process.  That process allows the owner to identify the net amount needed from the business sale.  In concert with the valuation of the business, an owner will know if the retirement goals are realistic.  If they are not realistic, they will have control and be able to adjust accordingly.

The Personal ROI

Often the personal ROI of building an exit plan far outweigh the financial ROI.  A well-thought out exit plan provides the owner with many unexpected benefits.  Those benefits include:

  • Controlling how and when they exit the business

  • Having some say in how the business carries on after the exit

  • Preserving family harmony

  • Reducing employee and family uncertainty

  • Rewarding key employees and

  • Providing all the options so the owner proactively chooses how to exit

planning maintains family harmony

The Exit Planning Process

Planning for a business exit takes time.  To be successful, the owner needs to take time away from the business and follow the guidance of advisors.  This process takes time and input from all stakeholders.  Richard Jackim and Peter of The Christman Group outline the exit planning process as follows:

exit planning process

Step 1: Data Collection

In the first stage, the owner(s) completes a questionnaire to uncover personal, business, financial, family and estate goals.  Next, the exit planner interviews the owner to discuss the questionnaire and answer deeper follow-up questions.  In this stage the exit advisor interviews all relevant stakeholders to get their input for the owner’s exit.  The planning team researches additional industry information related to fill in any remaining knowledge gaps.

Step 2: Valuation and Analysis

In this stage, the owner get a business valuation and personal financial plan are completed.  The financial plan explores the owner’s lifestyle and income requirements for after the sale.  It also addresses any legacy planning items related to charity or family members.  Using the valuation, we examine impacts of different sale prices and structures.  

The valuation provides input and validates the financial plan.  We complete analysis on the strengths and weaknesses of the business.  This is used to provide specific recommendations on how improve the value and sellability of the business.  Lastly, we review the different exit strategies and tax implications.  The exit team provides recommendations on how to minimize, defer and eliminate taxes associated with the sale and estate.

Step 3: Develop the Plan

Based on the analysis in the previous stage, the team creates the plan.  The plan outlines specific steps the owner should complete to maximize the value of the business.  The structure best suited for the owner’s financials goals is determined.  The exit team presents all of the potential exit options and related advantages / disadvantages to the owner.  

The owner decides which exit option is ideal in relation to the owner’s goals and objectives.  The expected tax burden is shown along with options for minimizing.  The owner chooses the tax strategy which best aligns with their goals.  The attorney recommends specific actions needed to implement the plan.  The plan often requires drafting of specific legal documents to execute the plan.

Step 4: Implement the Plan

The last step involves executing the plan.  A legal, pre-transaction due diligence is completed to identify any hurdles to selling.  The tax plan is reviewed and implemented by the CPA.  The estate planning attorney prepares all necessary trust or tax planning documents.  The client works to implement the value adding recommendations provided previously.  The wealth management plan is created in preparation of the incoming sales proceeds.  Lastly the investment banker or business broker starts the business sale process.

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The 8 Exit Options

Exiting a business has a different definition to different people.  Depending on the owner’s goals, certain exit strategies are better than others.  The business owner has 8 options for exiting the business.  While there are many variations of these options, they fall into one of these 8 options.  These options will provide differing amounts of involvement and personal freedom for the owner:

Option 1: Transfer Ownership to the Family

According to studies, 50 percent of business owners want to transfer the business to their children.  In reality, less than a third actually do.  Transferring ownership has the possibility to create tension in the family.  This is especially true if the owner has multiple children and not all of them work in the business.  The other downside is that the children typically do not have the needed resources to buy the business outright.  This forces the owner to carry a portion of the sale in a note or take payments over time.  This note structure puts strain on the owner’s financial security and retirement plan as the payments are not guaranteed.

Option 2: Sell to Other Owners or Partners

Sometimes a business will have owners with age gaps or an owner who doesn’t wish to retire yet.  If this is the case a viable exit strategy is to sell ownership to the other owner(s).  In a well-prepared business, the owners will have a buy-sell agreement already in place.  The buy-sell agreement will outline the terms of the buy-out.  It is likely the valuation terms will need to reviewed.  This exit strategy allows the business to stay in the “extended family”. 

The downside to this exit strategy is when the owners do not have a well-written by-sell agreement in place.  This requires the owners to come to agreement on the value and terms of the sale.  Getting agreement at this stage is often difficult and can get messy.

Option 3: Sell to Key Employees or Management

With this exit strategy, the owner sells all or part of the business to key employees or management.  The buyers have several financing options ranging from SBA loans to leverage buy-outs.  Financing is often easy to come-by because the employees have expertise in running the business.  A portion of the sale funds will need to be either provided by the buyers or made up through seller financing.

Option 4: Sell to all Employees Using an ESOP

One very complicated option is to sell the business to the company’s employees.  This occurs through what’s called an employee stock ownership plan or ESOP.  The ESOP has significant tax advantages for both the owner and the employees.  The business typically needs to be of a certain size for this to be a viable option.  If this is something you’re interested in, we recommend seeking out experts to help.

Option 5: Sell to a Third Party

An owner can also sell to an outside party.  This could mean selling to a complete stranger, a competitor, a customer, or a supplier.  The buyer could also be a financial group such as a private equity group or institutional investor.  At Exit Brokers, we help owners sell their businesses to third parties like those listed above.

It is our experience that selling to a third party often is the best option for a business owner.  This option allows the business to be sold at market value.  It also mitigates the financial risk as most sellers receive the majority of the purchase price in cash.  The downside is this option typically takes much longer.  The long process of marketing a business for sale gets risky if customers or employees find out too early.

Option 6: Refinancing or Recapitalize

Sometimes an owner simply wants to take some money off “of the table”.  There are several ways to do this.  The owner could sell off a portion of the business or leverage its asset with a bank.  With this strategy, the owner stays involved in the business with majority or minority interest.  While not a full exit strategy, it does allow the owner to fulfill exit goals.  The downside is that the business is now either leveraged or has new partners.  The new leverage adds risk to the cashflow of the business.  The new partners may not be compatible with the seller which could add risk to the business.

Option 7: Go Public

Going public is an exit strategy

The ultimate exit strategy is going public with an initial public offering (IPO).  Going public is a very exciting time and has been a successful strategy for many owners.  Going public provides the business with additional capital for growth.  This capital provides liquidity for the owner, key employees, and other employees.  Valuation multiples for public companies are typically higher than those of private companies.

There are several downsides to going public as well.  Most businesses are not large enough or growing fast enough to consider going public.  Going public also dilutes ownership or leads to the owner losing control.  A public company has additional reporting and transparency requirements which is often challenging for a privately-held business.  Going public is not an immediate liquidity event.  Some stock is retained or restricted from sale for a period of time.  Lastly, an IPO is expensive.  Firms can charge anywhere from 15 to 25 percent of the money raised.

Option 8: Liquidate the Business

If none of the other options are viable, a business owner may choose to simply shut the business down.  In this scenario, the owner sells the business’s assets, collects remaining accounts receivables.  The owner then pays any remaining bills or debt and what remains is kept as the sale proceeds.  This option make the most sense when the asset of a business are substantially more valuable that the income they produce.

Although the process is simple and fast, it results in the lowest possible value for the business.  No credit is given to goodwill or “blue sky” of the business.  It also means the employees will lose their jobs and no legacy of the business will continue forward.

How To Build Your Exit Planning Team

As you may have noticed, a consistent theme in exit planning is reliance on a team of advisors.  Planning for an exit requires a very broad knowledge base.  It is nearly impossible for one advisor to have all of the required knowledge for all elements of an exit plan.  A great exit plan is built by a great team.  A great team has all of the following advisors:

Lead Exit Planner

The lead exit planner is someone with a very broad understanding of exit planning strategies.  These include financial planning, business strategy planning, estate planning, tax planning, and strong communication skills.  This person may be an attorney, CPA, financial advisor, business broker or investment banker.  

Because planning for an exit is a once in a lifetime event.  Therefore, it is unlikely an exit planner is an existing advisor for the business owner.  The exit planner plays the role of the quarterback of the plan.  They are responsible for planning and coordinating with all the other advisors.  They interview the business owner and help identify the priorities.


The attorney is responsible for handling the legal elements of the owner’s plan.  This includes the estate planning work, legal due diligence work, and handling the legal aspects of the actual sale.  Occasionally the attorney also has a tax background and can provide tax advice as well.  Because of the broad knowledge required for exit planning, we recommend working with a multi-disciplined legal firm.  This firm should have knowledge estate planning, business, tax and M&A expertise.

Insurance Professional

An insurance professional is important when planning for the ‘what-if’ scenarios of the plan.  The business owner or key employees typically need life and disability insurance.  Insurance is an often forgotten, but powerful tool in the exit planning process.  Partners should have life and disability insurance tied to the other partner.  A seller with a carry-back should have insurance on the buyer.  An owner should have insurance on the key employees.  A child buying out their owner-parent should have life insurance on the parent during the transfer.  A good insurance professional identifies the blind spots and mitigates the ‘what-if’ risks.

Accountant or CPA

A talented accountant is a key component of any exit planning team.  The accountant is responsible for preparing the business’s financial statements.  This includes the company’s profit and loss statements, balance sheets, and tax returns.  The CPA also designs the tax strategies to minimize taxes associated with the plan.   A CPA on the exit plan team should have a broad knowledge in the various aspects of exit strategy.

Business broker or Investment Banker

The business broker or investment banker works as an advisor the business sale.  They are responsible for the business valuation and recommendations on how to improve the value and sellability of the business.    They provide the planning team with realistic scenarios and options for the owner’s exit. 

Selecting this advisor can be difficult as many firms specialize or have minimum value thresholds.  An exit planning firm is hard to find as most of these firms are more focused on the transaction.  The transaction is where they make the bulk of their revenue.  The right broker or banker needs to understand the long-term nature of the exit plan.  They need to be prepared for the long-haul.

Financial Advisor

The financial advisor is responsible for the comprehensive financial plan and wealth management for the seller.  Often overlooked, this is possibly one of the more important advisors.  In addition to helping with the plan, they also end up working with the seller for many years after the sale.  This advisor could end up managing the family wealth for multiple generations.  They often have the deepest understanding of their clients’ goals, objectives, and family dynamics.

Estate Planner

The estate planner can be grouped with the attorney or could be a separate advisor.  This advisor looks at the estate plan in relation to the business sale.  Attorneys often have specialties so you may need an estate planning attorney and a business transaction attorney.  The estate planning attorney should be well-versed in closely held business interest and the options available to sellers.

Exit Planning Will Pay Huge Dividends a Business Owner

Well, there you have it!  An overview of exit planning.  Hopefully by now you can see the importance of creating a plan to exit your business.  While the task seems a bit daunting, the return can be significant.  The return could equal more money in your pocket or more family harmony after the exit.  Whoever you choose to lead the plan, expect a significant time investment upfront to establish your goals and priorities. 

A custom plan creates the best results so be open to the process.  Communicate with your advisors so they can give the best advice possible.  Lastly, don’t be afraid to invest some resources into the process as the return could be 50 to 1,000 times more than the investment. 

If you have any questions, we’d be happy to hear from you.  Feel free to send us a message.