Exit Planning - not now! or maybe?

At Rosedale Advisory we know all too well that our business owner clients have a lot on their plates whatever their stage in the ownership lifecycle.?

From managing employees, creating sales to overseeing finances, there never seems to be enough time in their days. When it comes to Exit Planning, it’s easy for them to put it off, thinking it can be dealt with later. Business advisors are oft faced with the familiar response: “I’m not ready to begin planning for my exit. I have other business tasks that take priority.”?

However, as Exit Planning Advisors and Certified Value Builders we believe it is essential and should not be delayed.?

The ?2022 BEI Business Owner Survey reported?that 35% of responding owners believe they don’t need to plan for their exit yet, with an additional 13% arguing they don’t have enough?time, money, or energy?to deal with Exit Planning.?

However, for those who are considering Exit Planning the survey also revealed a significant shift in the age of business owners who are considering Exit Planning, with 77% of respondents falling between the ages of 25-54 years thereby thinking about their exits?at an earlier age and stage in their ownership lifecycle. ?

So to address any Exit Planning procrastination we are sharing these four suggestions:?

#1: Planning Should Begin While Business is Good?

For younger business owners who may not be considering retirement or transition for another 10+ years, the urgency to commit to an Exit Plan may not seem pressing. However, creating a plan is crucial for the continued success of the business.

We all know that business projections and sometimes the life of the owner do not always go as planned. Exit Planning is vital for the continued success of a business. “A divorce, death, illness, disability, or split from a business partner can cause undue duress on a business and damage from which it may never recover,” Teri Parker (Press Enterprise) said in a recent article on succession planning.

“Planning allows for the orderly transition when the owner(s) are ready to sell – or when they are forced to sell because of an unforeseen event.”?

Exit Planning should actually begin in the midst of the business running smoothly. If the planning begins as a result of a crisis, the outcome may actually be more detrimental than anything. By starting small, such as crafting business continuity instructions or a shareholder agreement, business owners may begin to see the importance of planning early.

#2: Exit Plans are Meant to Evolve?

Exit Planning is not a one-time task, but rather a continuous process that should be revisited often. As the business grows and changes over time, the Exit Plan should also be adjusted to reflect these changes.

Creating actionable steps to include reasonable timelines and deadlines over a period of time ensures owners might reach the ultimate exit goal:?leaving their business on their terms.

Coming up with a comprehensive, written Exit Plan often scares owners because of the misconception that the document can’t be changed. Though there is an increase of young business owners talking to professional advisors about planning, creating the actual written document remains at only 20% (BEI Survey)

As well as the flexibility in Exit Planning other benefits from doing such are:?

1. Increased clarity, accountability, and opportunity for success?
2. Maintaining control as the business grows and changes?
3. Efficiency and minimising cost and time of planning work as business value grows?

#3: More Time on Exit Planning Increases the Likelihood to?Exceed?Exit Goals & Value Build?

We understand that many business owners opt for a phase-based approach to planning. Each phase requires a dedicated amount of time, and in the long-term, more is gained when there is more time allotted to actually focus and grow business value.?

Our experience teaches us that standard timeframes for each of the common phases of the Exit Planning process are as follows:?

• Exit Plan Design & Choosing an Exit Path:??90 days - 1 year?
• Closing the Value Gap, or, the difference between the actual value of the company and what the owner needs to exit:?5 - 10 years?
• Tax planning & implementation:?3 - 10 years?
• Transfer to children or employees:?3 - 10 years?
• Selling the business to a third-party:?At least?one year?

Every owner’s exit time frame is contingent on both the owner’s goals and the business’ readiness for transition. Today, few businesses are sufficiently prepared to transfer without a significant amount of time spent with an Exit Planning or Corporate Finance Advisor in order to build transferable business value, carefully tax plan and achieve the goals set when the owners first founded the business.??

Whilst the above timeframes may seem “large and scary” they can make the goal of successful exit seem achievable in terms of having the time to create and grow transferable business value.?

#4: Take a Holistic Approach to Planning

Many business owners start their own companies as a means to make the most of their own time but it does seem that they end up often having less time!

Fundamentally, Exit Planning is a learned concept for most owners. When owners are more caught up in the logistics and the dynamics of business, they may not additionally be able to grasp the necessity to plan and begin early, which is where external expertise helps.?

Exit Planning is not just about finances, it's also about the overall well-being of the business, the owner, and their family. Advisors such as Rosedale Advisory consider the emotional and psychological aspect of Exit Planning and help business owners navigate the transition process. After all, the business exit is the most important financial event of their professional lives.?

Working backwards with owners to determine a business exit strategy and a timeline will ultimately earn owners the freedom they desire: the freedom to sell or transfer their business when they want, for the amount they want, and for the successor of their choice.?

The Bottom Line:?

The idea that it is too early to plan is just simply not true and we at Rosedale Advisory hope this article goes some way to persuading you of this.

Shellye Archambeau a female, tech CEO and author stated: “Start today. Work hard, make trade-offs, and strategise towards your goals. You can start these practices at any time in your life or you can restart them if you have let them go over the years. It’s never too late or too early to start working toward a goal.”?

Rosedale Advisory are dedicated to assisting business owner clients reach their goals. Schedule a meeting with us early in 2023 and we can discuss strategies to kick start Exit Planning sooner rather than later.?