What Is Exit Planning?
Exit Planning, according to?Wikipedia, is the process of getting an entrepreneur ready to leave their business while maximising enterprise value, and consequently their shareholder value, during the?Mergers and Acquisitions?transaction.
Other non-financial goals may be pursued, such as passing the business down to the next generation, selling it to the staff or management, or pursuing other charitable non-financial goals. Exit Planning, in its simplest form, is a three-step procedure carried out by a business owner as he or she considers transferring ownership to another entity or person(s).
Professionals and business owners alike use a variety of terms to describe Business Exit Planning. Transition Planning, Exit Strategy, and Succession Planning are a few examples. None of these phrases adequately describe or cover the entire business exit planning procedure.
Instead, each term refers to a stage or element of the process of Business Exit Planning.
Let’s break down each of those components below:
1. What is Transition Planning?
The business owner initially invests resources in enhancing the value of their company in the eyes of a potential buyer or new owner during the first phase of an Exit Plan. It makes sense to assume that if a business is profitable over the long run, a potential buyer or new owner will be willing to pay more for it.?
And as such, it makes financial sense to improve the business and boost its profitability in the three to five years prior to its sale. EBITDA, EBIT, and enterprise value are just a few of the profitability indicators that are used in the Transition Planning process. When a business is sold or transferred to a new owner, these measures are also applied.
Another step in the Transition Planning process is to proactively get the company ready for the buyer's due diligence during the sale process. Similarly, while planning for a transition, steps must be taken to safeguard a company's relationships with its clients, staff, and suppliers.
For many businesses, it takes one to two years to complete a thorough Transition Plan. The development of the entrepreneur's Exit Strategy should occur in phase two of the exit planning process.
2. What is an Exit Strategy Plan?
The business owner must take into account their own personal objectives, which may include financial goals, company culture, and/or legacy-related issues, in order to develop an Exit Strategy.
Every business owner wants to fulfil their exit promise in accordance with their own terms. In order to achieve these goals, the business owner's Exit Strategy must match the "right fit" for the new owner of the business. There are numerous ways to leave business ownership, including:
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Each of the aforementioned exit routes has distinct tax repercussions and can be set up in various ways. During this stage of Exit Planning, estate and tax planning are crucial.
Sometimes a business owner's personal and professional goals conflict. For instance, discussions with an international buyer willing to pay a higher price and with intentions of moving the plant would not be a "right fit" if the business owner wants the new owner to keep the business in its current location while receiving top dollar for its sale. In this case, the goal of getting the highest possible sales price clashes with the desire to keep the company in the same town after the sale.
Before the selling process begins, an entrepreneur can start thinking realistically about potential buyers or new owners in the context of his personal goals by developing various Exit Strategy scenarios. By making this effort, valuable time and resources are saved for when the company is eventually sold or transferred.
3. What is Succession Planning?
This third and most crucial step in the Exit Planning process deals with the need to replace any owners or members of the management team who might leave the company after the sale or transfer. Before a business is sold or transferred to new owners, it should also include business continuity planning or contingency planning in case the owners and leaders suffer a tragic loss.
Planning for Succession is essential to the buyer's long-term survival and financial success. It's more difficult to replace executive-level talent than it is to hire new workers. Since business owners and executives frequently have extensive knowledge, the company may eventually fail if proper Succession Planning is not made and executed carefully.
Conclusion
Unfortunately, business owners can find the process and field of business exit planning to be quite perplexing.
This is partially due to the fact that the profession is still developing, making it difficult to define terms, exit planning procedures, and designations.
Ask every advisor you come across about their experience in the industry, regardless of whether they have been certified as a business exit advisor or not, if you're looking for an Exit Planner for your company. What exactly have they done with legitimate business owners? How did the work they did with the client affect their outcome? Have any of their clients sold or transferred their businesses to new owners. Request more details.?
A seasoned, successful exit planner will be able to provide numerous case studies.
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