The Ultimate Payoff

Retiring from your business means more than finding a new owner. John M. Leonetti, author of Exiting Your Business, Protecting Your Wealth, helps you formulate a profitable plan


You made it. Now let’s do our best to protect it.

Your business has been built on your hard work and passion for what you do. The long hours, the battles with the finances, the incremental gains that you fought tooth and nail for are now more behind you than in front of you. For many, exciting challenges still await your careers. For others, a quick exit is what is most desired. In either case, you made it, and a warm congratulations is due to you for your accomplishment.

Now it is time to enter the equally challenging phase of keeping it. “It,” of course, is the wealth that has accumulated in your illiquid business. That wealth is locked inside your business, much the same way that wealth is locked inside your home. Now, home may very well be where your heart is, but your business produces profits. If your business is where your heart is, then this book is a very good resource to assist you in viewing the business more as an investment and less as a job you love. The reason you want to think this way is because the majority of your wealth is likely tied up in your business, and without a plan to monetize or transfer that wealth, a great deal of your hard work may be lost.

Whether you want to exit over time or you are a get-me-out-right-away business owner who is burned out and dreads returning to work after enjoyable weekends and vacations, there is a way to begin planning your business exit today.

Don’t Wait Until Later

One of the difficulties of business exits is the perception of it being overwhelming and complex. With so much information to be processed in a business exit, many owners procrastinate in doing anything. Often this results in a failure to plan an exit, and, again, loss of hard-earned wealth in the illiquid business.

Begin your exit planning today.

Most business owners need to not only improve, but actually begin, designing their business exit strategy plans. Your preparation for the business exit will control the likelihood of you getting what you want. The more information you have and the more preparation you do, the better your odds of reaching your real goals and protecting your hard-earned wealth. Remember that your exit requires knowledge that spans many disciplines and is of varying levels of complexity. You need to know something about all of these different areas because you will be making decisions regarding all of them.

This author estimates that 85% of owner-operated business owners have one chance at a business exit. As with mountain climbing, the stakes are high. And mistakes can be permanent.

What Drives the Process

It is your goals and motives that drive the exit strategy planning process. There is a methodology by which you can determine both how ready you are for your exit, and what type of exiting owner you resemble.

If followed, these measurements will determine the path which your exit strategy plan will initially take. So, in order to analyze whether you are ready for an exit from your business, you will follow a process to answer these questions:

  • Are you financially prepared for an exit from your business?
  • Are you mentally prepared for an exit from your business?

Your financial and mental readiness will be ranked as either High or Low. Then, depending on your readiness for an exit, you can check your alignment with four different types of exiting owners. Those four types include:

  1. The get-me-out-right-away-for-the-most-money exiting owner
  2. The well-off-but-choose-to-keep-working exiting owner
  3. The stick-around-and-grow-the-business exiting owner
  4. The rich-and-ready-to-go exiting owner

Range of Exit Options

There are, in fact, many options for exiting a business. Some owners will simply close down the business. Others will liquidate and sell off their assets, if any remain. But others—many millions, in fact—will need a written plan to exit their business and protect their wealth.

Many of these business owners have a substantial amount of wealth tied up in their businesses. The five major transactions that owners can consider as the basis for their exit strategy plan are:

  1. Sale of the business
  2. Private equity group recapitalizations
  3. Employee Stock Ownership Plans (ESOPs)
  4. Management buyouts
  5. Gifting programs

Don’t Go It Alone

Business owners wear many hats in order to handle the challenges of owning and running a business. They often adopt a do-it-yourself philosophy, which can extend to the business exit process. For instance, most business owners know something about the technicalities of exiting their business; they’ve thought about selling to a competitor or handing the reins to a family member.

Owners might know a little something about the technical pieces of a business exit, including accounting, taxation, estate planning, insurance planning, legal preparation, legal documentation and financial advisory services. But knowing a little bit about something can be dangerous; it can lead to a false sense of control and confidence. Why go it alone?

Assembling Your Team

A team of exit strategy advisors consists of a number of players, each having his or her own role and contributing to an overall execution of the exit strategy plan. The roles of the advisors are summarized.

Attorney. This advisor provides advice on legal agreements in the transaction as well as advice on estate planning documents for titling of assets.

Accountant. This advisor provides tax assessments for each exit strategy option. The accountant may also be called upon to provide cash flow projections for the company as part of a deferred payment arrangement.

Financial advisor. This advisor provides personal financial retirement projections and an investment strategy for the reinvestment of exit proceeds.

Insurance advisor. This advisor provides recommendations on life insurance policies, key-man policies, business policies, and long-term care policies—risk management tools to protect the owner’s wealth.

Mergers and acquisitions (M&A) advisor. This advisor provides insights as to the current marketplace for sales and transactions. The M&A advisor gives real-time feedback on the viability of an external sale.

Valuation advisor. This advisor provides a fair market value assessment of the company for purposes of measuring value and the viability of certain internal transactions.

Pulling It All Together

A marketplace of service providers, who vary in competence, are out there tripping over themselves to meet the needs of exiting owners. You must choose carefully amongst them to be certain that your exit strategy plan is the one being executed, not theirs.

Take charge of the exit strategy process with your newfound knowledge of business exit strategy planning so that your options are understood and your timing suits your personal goals. Customize your exit strategy plan to your liking. After a lifetime of success in business, you owe it to yourself to tackle this challenge of cashing in (or transferring your wealth) with the respect that it deserves.

“Reprinted with permission of John Wiley & Sons, Inc.” John M. Leonetti, Exiting Your Business, Protecting Your Wealth: A Strategic Guide for Owners and Their Advisors, 2008.

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