Business Owners: Why You Should Have An Exit Plan

Are you considering what it would look like to exit your business in a few years time? Or perhaps you’re already at the stage where you want or need to leave. The way to achieve this, with your head held high, money in your pocket, and your legacy intact, is by planning your next steps very carefully.

Make no mistake, what you need is an exit plan so that you can secure the business’ financial future. Importantly, you need to prepare this strategy well in advance of its execution so that your business has a fighting chance to cope with unforeseen circumstances and be in a position to build purposeful business practices and focus on its goals.

In short, a well thought out, comprehensive business exit strategy is an absolute necessity.

Defining The Issue

Let’s be clear about what it is that you’re contemplating. In order to grasp the severity of the matter, you first need to have a full account of what is. To that end, let’s define precisely what a business exit strategy is.

We define it as a strategic plan to hand over the ownership or share you have in a company to another party. A somewhat reductive explanation, because an exit strategy is never so simplistic, nor without its nuance. But regardless of the scale and complexity, it is a detailed means of reducing or liquidating your stake in your business.

Your reasons for exiting may be because the business is not successful and you want to limit your losses, or it may be that the business is making a mint but you want to cut your stake and get out while it’s still profitable to do so.

Reasons why you’d want to exit your business:

  • You’ve outgrown your business and want to move on.
  • You’re on the verge of burnout (but the business is in good shape).
  • You’ve lost your passion for the business.
  • The risk is no longer as easily brushed off as you get closer to retirement.
  • There are partnership opportunities which can give you access to more exciting work, growth, more secure economies of scale, and a bigger slice of the pie.
  • You’re getting distracted by other possibilities, which could endanger your current business.
  • You’re heading into retirement.

The Choices We Make

The reality is that these motivations for exiting your business are just a handful of examples. You may want to leave your business for any reason, at any time, and as long as you have the right exit strategy in place to wrap things up on your end, you can ensure that your business receives the handover it deserves.

Your choice will depend entirely on what you want. Do you want to retain any control or have any involvement in the business? Do you want things to be run in the same way after you leave or are you open to the idea of those entrusted with its care charting a different course altogether?

These are the types of things that you need to consider and the solution we feel that gives you the freedom to make these kinds of decisions is an employee benefit plan (ESOP). However, in spite of the fact that the ESOP solution could address all your concerns about exiting your business gracefully, it is used less than 15% in the sales of privately-held firms.

Vetting The ESOP Solution

What is often most enjoyed about the ESOP solution by business owners is the fact that you have access to a succession strategy. The kind that gives you the freedom to sell all or merely a portion of your company to your employees, thereby enabling you to choose either an instant or a gradual ownership transition. Not only can you effectively create a market for your company’s stock without having to wait months or years to find a buyer, but a well-devised ESOP allows you to leave your legacy in the hands of those in whose best interests lies the survival of the company.

Moreover, one of the side effects of an ESOP is lower staff turnover and increased productivity in your workforce from those who now have a vested interest in the company’s success. As a result, companies that offer ESOPs see increased productivity, which ultimately helps the company gain more profits and grow at a quicker pace.

Of course, we can’t forget about the tax advantages. Under the Internal Revenue Code, there are specific and extremely appealing tax-favored advantages. That said, your ESOP plan must comply with various participation, vesting, distribution, reporting and disclosure requirements.

It Pays To Plan Early

Retiring, or moving on to your next adventure, might not be on the horizon for years or even decades to come. But developing a plan earlier has a few benefits. For example, when you have the endgame in mind, you’ll find yourself uniquely equipped to make business decisions with direction and make progress towards your goals.
Additionally, developing an exit plan will mean gathering a detailed analysis of your business’ finances, giving you a measurable value that will inform the best selling situation for your business. It will also help you make your business more attractive to buyers, who view businesses with planned exit strategies more favorably.

There’s another, often overlooked benefit to planning your exit strategy in advance. The ability to carefully determine all roles and responsibilities within a business allows for a smooth transition. Unfortunately, this is often when the handover of a business falters and can lead to challenges that your business might not survive.

If you plan well enough in advance, however, it’s possible to ensure a good transition that will give those you leave behind their best chance at success.

Take Your Next Step Today

Leaving your business can be overwhelming, and dare we say, emotional experience. After all the years of hard work that you have put into building your business, you also deserve the opportunity to bow out gracefully.

We believe that an ESOP offers a satisfactory and flexible retirement strategy, one that can be developed and implemented for the benefit of all parties involved. That said, it takes expert guidance, experience, and diligence and that’s what our team of professionals bring to the table.

Each member of the Excel Legacy Group are equipped to walk you through any questions you have regarding ESOPs.

Talk to us today about your plans for the future.