Posts tagged with: succession planning

Smart Exit Strategies Begin With Early Exit Planning

It’s Never Too Early Or Too Late To Plan Your Exit Strategy

Early exit planning is essential for every business. On my radio show, Exit This Way, I open every show with the statement:

“It’s never too early or too late to plan your exit.”

Attorneys, wealth advisors, tax advisors and others all encourage early exit planning for business owners to minimize taxes; and to set up a variety of trusts to help you continue to control your company and its assets, while offering full protection for the business and your estate.

Paradox of Business Ownership

Don Brown, Vice President and Senior Relationship Manager at KeyBank opened his article, Smart exit strategies begin with early planning in the Kitsap Peninsula Business Journal by stating:

“What [most business owners] often fail to see and plan for is the byproduct of that success — that someday they will want or need to move beyond what they’ve worked so hard to build.”

That’s the crux of the paradox of business ownership.

There is a difference between exit planning and succession planning, but they must be addressed together because the decisions and outcome of both are intertwined.

I hear it many times a week: “I’ll walk away from my business when I’m ready to walk away. . . .” However, to successfully walk away when you are ready to walk away, doesn’t come together because you say so. There are many factors to consider, decide and prepare. The more prepared you are, the more control you have of timing, valuation, ownership, legacy; along with financial protection for you, the business and your estate. The earlier you start that planning, the more secure you can be that all the pieces are aligned and integrated to achieve your objectives.

Timing Matters

Deciding when to exit, never mind which exit option you want to pursue, is non-trivial. The learning curve and execution of that decision is time-consuming for you the owner as well as your team of advisors.

Succession planning and exit strategy planning can be a distraction from running the day-to-day operation of your business. When you start early, you have control and flexibility to explore options and leverage your advisors to optimize your outcome. Consult your All-Star Team of Advisors early and often.

The risk of waiting until too late (and then needing to act fast because of health, business cycles, market conditions, business or family issues) is that you may leave up to 50% of the value of your business on the table, and share a greater portion of the proceeds with ‘Uncle Sam’. With good planning, that doesn’t have to be you.

 Orchestrate Your Exit

As Don says: “a well-developed exit strategy is carefully connected to your overall business strategy.”

That’s why at This Way Out Group, we provide a Four Step Exit Strategy Framework™ to tie every strategic decision in the business, short-term and long-term, to your exit and succession strategy.

In parallel, your estate plan and exit strategy must be integrated to work in concert with each other. It takes a team approach to orchestrate how these different pieces work together. At This Way Out Group, we facilitate that team to cooperate, coordinate and collaborate in your best interest. Contact us to see how early exit planning can help you.

Baby-boomer Sellers’ Opportunity

Here’s the recipe you need to set up in order to have the licensed transaction experts at the end, competing to sell your business and to have buyers eager to buy on your terms on your timeline:

  • Start succession planning early
  • Maximize valuation
  • Accelerate growth
  • Plan an early exit
  • Make your business buyer attractive

It’s worth the time invested all along the way for you to be able to exit with the financial freedom to pursue your reinvention.

Family Business Succession Planning

Succession planning is a combination of contingency planning, management planning, hiring, transitioning out of an operational role, taking on a more strategic role, and looking ahead to your reinvention beyond the business.

In family businesses, succession planning may include determining ownership and management succession on independent parallel tracks.

Your exit plan should include the time and effort to implement succession planning to ensure the company survives your departure. Your exit plan will likely be a critical part of your own financial and estate plans.

Five Issues Of Family Business Succession

A succession plan is an exit plan. Your succession planning process should begin as early as possible just like any other exit plan: ideally, when you buy or start the business.

The best business sale outcomes are never a fluke. That’s even more true when your exit plan entails succession planning within the family. Five issues underscore effective family business succession. These issues apply to any size business regardless of industry:

Family business succession can be a painless process.

Family business succession can be a complex process. The combination of personal and business interests, emotional and financial, are leading causes of conflict in family businesses and as a result, many families never address or resolve these issues ever.

Here are some issues to be aware of when considering your own family business succession:

1. Are your children or other members of your family the right people to take over the business? When it comes to family, it can very helpful to have a pre-defined rubric of objective criteria as well as engaging independent external experts to facilitate this process. Ask yourself the following questions as objectively as you can:

  • Do any of your children have the necessary skills, education and experience to take over running the business? If not, are they willing and capable of learning these skills? Outside training as well as mentoring may be required. Do they share your goals, values and aspirations for the business? Do not assume or minimize these cultural issues within the family or within the business.
  • Do any of your children actually want to take over the business? They may have very different ideas or even different ideas for the business. Open and honest discussions about these issues with family members can be extremely difficult and awkward for all concerned.

2. Communicate openly and honestly about your hopes and dreams for the business going forward. Ensure that you are not imposing your own goals and aspirations onto your children. And, when you do transition ownership/ management/ control to the business to family members, do so in a way that is fair and transparent. Otherwise, you risk alienating family members who do not participate.”

3. Ensure that you have the appropriate business agreements in place, which are fair and contracted on commercial terms. One of your children may express a desire to take over the business while another wants to pursue their own professional goals.

Later, jealousies or rivalries may arise if the business does well and the child who didn’t participate in the business feels unjustly treated. A proper agreement in place will protect everyone from any future potential claims that may be made against you and your estate.

Given the current high divorce rate, it may also be wise to consider an agreement to protect against claims made by your children’s spouses against family business assets if their marriages break down.

4. Keep in mind that you do not necessarily need to pass your business on to your children in order to set them up to financially benefit from the business. This is an obvious statement, but one that is easy to overlook when your own identity, self-worth and sense of purpose and value have become fundamentally intertwined in your business. There are many options to ensure that future generations benefit financially that don’t necessarily involve them shouldering the mantel of owning/running your business. This is particularly true if the children are not ready, interested or have the aptitude and commitment to take on running the business. They may have other plans and aspirations.

By passing the business on to your children, you could be putting their entire financial future at risk in that situation. In contrast, if you were to sell the business and set your children up with financial structures funded by the sale proceeds, you would mitigate their risk, and they would have the flexibility to pursue other plans or aspirations.

Don’t Ignore Succession Planning

Along the lines of ‘begin with the end in mind‘, start this new year with an eye towards identifying who will be your successor and how you will implement your succession plan – even if you anticipate it will be decades into the future.

Here’s a personal story to make my point:

At age 34, my father launched his business with two partners in 1960. The business grew to 5 locations, received many accolades, awards, interviews, etc. In 1982 my father was diagnosed with cancer. By 1984, he was too jaundiced to appear at the office or be seen by clients. That’s when he invoked the buy-out clause in their partnership agreement. He had that exit strategy established from the day they opened their doors 25 years prior when he was young and healthy.

He knew his partners would be his successors if anything unforeseen should happen and vice versa. They had structured their agreement that way from the outset. He never dreamed he would be the one to have to invoke that paragraph of their business plan. But when he needed it, he could and did. They bought him out and the business continued without a hiccup. And my father was able to secure my mother’s financial future quickly and easily.

Many if not most business owners avoid, postpone and in the end fail to plan for their business continuity in the event they can no longer work due to death or illness.

  • They subscribe to the naïve theory that they’re too young to worry about succession or retiring or their exit strategy – even after age 65!
  • They assume nothing will ever happen to them, they’re too healthy, to vital and too important to the business. The logic they use is: “If I don’t think about the ‘what if’s’ – they can’t happen…”
  • They don’t bother to create a business succession plan to address an unanticipated event such as disability or death – which can occur any time.

Ideally, every business owner should start planning their succession, and work himself or herself out of a job from the outset, even in the business plan.
It’s never too late to start today.

With an eye for hiring, grooming and cultivating successors in various aspects of the business, you have time to instill your strengths and values wide and deep throughout the organization.

For CEOs of small and medium size businesses, the business is a primary asset they will need to liquidate to fund their retirement and provide for the financial future of their families.

If you intend to sell your business to a third party, then becoming detached from the day-to-day operations is a straightforward strategic process you need to put in motion.

As the seller, in order to maximize the value you can realize from the business and produce a financial gain, you must shift the value of the business from you personally, to the business itself. The sooner you start focusing on this long-term objective, the better the outcome for both you and the business.

Alternatively, if you wish or intend to keep the business in the family, your choices for successors can shift or be constrained by family requirements, needs and politics.

Succession planning is the responsibility of you the owner, not your management team or the next generation. You must develop your succession plan in sync with your own transition plan to balance the best interests of the company with all its employees, vendors and clients; and the requirements of you the exiting owner who needs capital to fund the rewarding lifestyle you deserve as the fruit of your labors.

Succession planning is only one piece you need in place for a strong integrated strategic plan including operations planning, transition planning and contingency planning.

Building Wealth and Exiting Your Business Don’t Start on the Finish Line

Don’t start on the finish line. There are five arts to master to build wealth and exit your business. That takes time.

Strategic Planning – The Art of Direction and Decisions

Building wealth and exiting your business don’t start when you are closing in on the finish line. It’s proven that when you focus on selling your business two to five years before initiating the sales process, you will almost certainly realize a much larger return. Developing a systematic approach to growth with a focus on your long-term goals makes every decision along the way easier, even in the face of risk, incomplete information, or unexpected change.

Continuity/Succession Planning – The Art of the Changeover

A systematic approach to succession planning gives you control, choices and sufficient time to choose, train and transition management, of your business. Your job here is to maximize the value you receive when you sell or transfer your businesses. You need to identify an owner-centered approach to exit planning based on your goals, objectives and concerns.

Exit Planning – The Art of Monetizing Your Business

Exit planning for wealth is all about maximizing and preserving the transferable value of your business. It’s extremely important to integrate personal, financial and estate planning goals; and then coordinate them with the growth goals and opportunities of your business; to maximize profit and minimize tax liability on both sides. Your fiduciary objective is to transfer ownership and corporate value as profitably as possible.

Contingency Planning – The Art of Structuring Your Business For Opportunities, Possibilities And Growth

CEOs in general never take time to develop contingency plans. They are building a prosperous business not planning for a crisis or its demise. Skipping this one element of their business minimizes the value they can expect a buyer to pay for the business. You must develop those contingency plans and build the foundation elements to maximize valuation and make the business buyer ready.

Transition Planning – The Art of Reinvention

When you stop and think about it, most entrepreneurs do not measure success in terms of the financial rewards, but rather by the freedom and potential legacy that these financial rewards confer. But entrepreneurs often postpone transition planning because they struggle with how they would use their new freedom and how they want to define their legacy. You need to learn to find new purpose, community, and structure for your time; and then how to master wealth management and its new challenges and responsibilities.


Your mindset going in to exit planning is the most critical determinant of your successful outcome. There are a number of mindset factors that you must recognize and consider. Your mindset will determine your ability  to set and achieve your hopes and dreams. You have to be able to recognize and adhere to the process to achieve them. Most CEOs have dreams and goals of the outcome they want from their business. Many fewer CEOs reverse engineer their goals into a timeline, process, and a sequence to get to that exit.

Challenges will occur that could derail your exit plan, guaranteed. Fighting or resisting those challenges is an unproductive waste of time and energy. Instead, install and master a mindset to address, overcome, resolve, and circumvent each challenge as it arises.

Attitudes/mindset are often ignored or minimized when exploring what we need to learn to achieve our goals and get to an exit.

Most CEOs trained to emphasize the strengths of left-brain thinking, resist addressing or developing the right-brain skill of mindset readiness. Mindset readiness requires the most time to develop and is not easily measured or demonstrated. But your mental and emotional attitudes are the most important of all learning components because your attitude/your mindset is the gatekeeper that determines how well you acquire, master and apply any other skill set and knowledge.

Entrepreneurs stubbornly adhere to tired outdated thinking which in turn sets up their business to continually struggle, not achieve its full potential and settle for selling their business for only a fraction of its worth. That downfall is totally preventable.

In the area of mindset, attitudes and beliefs, do you experience any of these? Make note of the ones that apply to you.

  • Have no exit goals
  • Can’t set exit goals
  • Don’t know how to set exit goals
  • No consensus on exit goals
  • Can’t delegate/afraid to delegate
  • Prisoner of the entrepreneur’s trap  – Trying to wear all the hats
  • Scared to grow – because of past experience, old belief systems, systems or staff that slow or prevent your growth
  • Scared to share control, responsibility, ownership or profits
  • Scared to lose control
  • Easily distracted – by environment, people, events, equipment
  • Minimal goals/easy goals/short-term goals that don’t stretch individuals or the organization – to play it safe
  • No personal accountability of the leadership team/ of you
  • Still running the business as an opportunist
  • Resist building a strong business foundation for growth or increased value
  • Ignore or deny the need for exit planning
  • Ignore or deny the need for contingency planning
  • Ignore or deny the need for continuity planning
  • Ignore or deny the need for succession planning
  • Ignore or deny the need to plan for your transition
  • Ignore or deny the need to plan for your reinvention

You’ve heard the phrase:

Your attitude determines your altitude.

Your mindset is the key to everything you will achieve to exit your business when you want to. When you decide each of these elements is important enough to the business and to your future beyond the business, only then will you take action and:

  • Develop the skill sets
  • Acquire the necessary knowledge (direct learning or surround yourself with experts)
  • Develop plans, strategies, and tactics to achieve everything you want for your business and from your business when you exit.
  • Apply the discipline and leadership to accelerate growth and maximize value on your timeline.

“It’s a mindset – you’re only limited in scope by your own imagination and your ability to see through problems, challenges and roadblocks to the opportunities.”


Where to Start Before You Set Exit Objectives

Whether you address it from the outset of your business or later down the road, every business owner needs an exit plan. Some business owners intend to sell the business for maximum profit, some want to sell it to successors or employees, others want to go public, and still others intend to keep it in the family.

In each case, taking the time to prepare the exit plan now will allow you, the owner to reach your ultimate goal with a comprehensive 360 view with all the pieces in place. Business-owner exit planning should begin five to 10 years before you want to retire or pass your business to your chosen successors.

Unfortunately, 95% of all business owners NEVER do exit planning. And they wonder why they end up with nothing when, on the day they get fed up and want to sell it as fast as they can; they accept the first offer they receive – at a discount of 30-50%.

That doesn’t have to be you.

Plenty of expert advisors will tell you that exit planning starts with your exit objectives and the retirement income you want to have – because that’s where they start working with clients.

There are a few other pieces you need to define BEFORE you can answer those two questions. They are core pieces of having a strong business foundation long before you consider implementing any exit strategy.

Before you can define your exit objectives, you must identify:

1. Your long-term ultimate goals for the business – with you or without you
2. How you want to secure your legacy now, before you leave
3. How you want to ensure your dynasty once you exit the business
4. Who you want to take leadership of your business (as owner, non-owner manager, or transition staff)

What still needs to be done in terms of business planning, contingency planning, and succession planning to position the business for maximum growth and value? Work on that planning first, as a prerequisite to detailed exit planning.

Multiple Objectives
You may have multiple exit objectives. Be sure they are consistent. Then prioritize the outcomes. Selling fast, selling for maximum value and selling for 100% cash up front can be conflicting goals.

As part of your transition planning process, when you define what your next step will be after you exit, you’ll get a better idea of how much funding you need: for a new venture, to invest or for philanthropy; not just your personal retirement income. You’ll also get clear on your goal timeline and your options for what format the transaction can take.

The lifestyle you intend to pursue after the exit may expand or restrict the exit options you consider.

‘You don’t have to have a plan today.
You do have to start planning today.”

The more lead time you invest in building a strong business to achieve your ultimate goals, the more fruitful and fulfilling will be the exit strategy you can choose to implement.

Why Are Exit Strategies So Difficult?

Working in a vacuum, the assumption is that Exit Strategies Are Difficult.

Most CEOS assume exit strategies are difficult. That assumption discourages anyone who is considering an exit from getting started early.

As the CEO of your growing enterprise, it’s easy to be so consumed with the day-to-day operations of the business, that you never find time to think about your exit strategy (knowing it is going to be difficult). So naturally, it simply gets shuffled to the bottom of your TODO list and never rises to the critical path until it’s too late.

You can minimize how difficult your exit is by being proactive, starting early and committing to the bigger plan to achieve your ultimate goal. As a discerning entrepreneur, you know your business is your largest asset that you need to monetize if you are going to secure your reinvention (fka retirement).

Exit planning requires numerous conversations and then an integration of solutions in all the following areas:

  • Peak performance
  • Succession planning
  • Contingency and continuity planning for management and leadership transition
  • Business valuation strategies to make the business buyer attractive and buyer ready
  • Transition planning to your reinvention (fka retirement)
  • Tax planning for both the business and the CEO
  • Estate planning goals and options from wealth advisors and insurance advisors
  • Deal structure options both legally and financially

Your exit strategy will be specific to you, your business, your timeline and your goals.

  • There is no ‘cookie-cutter’ approach.
  • It doesn’t happen overnight.

The difficulty in exit strategies comes from the multitude of possibilities and recombinations you have to explore and choose from. That’s also where the fun and freedom come from.

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