What Is Exit Planning and Why Should Every Business Owner Care?

“To ‘begin with the end in mind’ means to start with a clear understanding of your destination. It means to know where you’re going so that you better understand where you are now and so that the steps you take are always in the right direction.” - STEPHEN R. COVEY

Business transitions are getting closer for many business owners, as this data shows…

• 40-60% of private businesses in U.S. are owned by Baby Boomers.

• 40% of owners want to transition within the next 5 years.

• Up to 50% of business exits are involuntary.

And yet, the majority of business owners are not ready for the future, as we can see from these statistics…

• 60% of owners do not understand all of their exit options.

• 94% of owners do not have a formal plan for their post-transition life.

• 75% of owners profoundly regret selling their business just a year after selling it.

Source: Exit Planning Institute®

But, every owner will transition eventually, whether through an internal (e.g., inter-generational transfer, sale to existing partners, management buyout, ESOP) or external (e.g., sale to a third party, recapitalization, orderly liquidation) exit.

How Can You Prepare for an Eventual Transition?

Exit planning helps every owner to have a transition plan in place ahead of time. An exit plan asks and answers all the business, personal, and financial questions involved in an ownership transition. It begins with the end in mind and creates a paradigm shift for the business owner.

Paradigm Shift #1: Exit planning allows the owner to focus on holistic planning.

Exit planning balances three legs of the stool:

• Owner’s Personal/Family Situation

• Owner’s Financial Needs

• Increasing the Value of the Business

It also creates a partnership with the owner’s trusted advisors including accountants, financial advisor, attorneys, and consultant. All of these partners work together to achieve the business owner’s objectives.

Paradigm Shift #2: Exit planning helps owners recognize that exit strategy is business strategy.

We do things every day in our business that affect our eventual exit. The key is becoming intentional and deliberate about planning for transition. Exit planning happens in the present with a focus on value growth and increasing readiness.

Paradigm Shift #3: Exit planning makes it simple for owners and their advisors to adopt a common framework.

The Value Acceleration Methodology™ is a proven process that focuses on value growth and aligning business, personal, and financial goals. The process allows the owner’s key advisors to work together to deliver results.

Results of Exit Planning

Exit planning offers many benefits for the owner, both personally and for his or her business.

Personal Results:

• Personal plan for life post-transition

• Personal financial requirements identified

• Family’s business-related concerns addressed

Business Results:

• Business and financial risk is reduced

• Business becomes transition-ready

• Business leadership aligns around growing enterprise value

• Business is more attractive to future owners

• Business valuation is higher

• Owner remains in the driver’s seat on timing and all decisions

How and When to Start Your Exit Plan

Start working on your exit plan as early as you can so you are prepared for an unexpected transition and are not weighed down with anxiety about the future. A consultant or Certified Exit Planning Advisor® can help you ensure that your business, personal, and financial objectives are achieved. 

Contact us for a free consultation to help you determine if you and your business are on track to be transition-ready!

Gray Wirth has served more than 30 years as a leader in corporate, nonprofit, small business, and military contexts. He has successfully led organizations ranging from 100 to 3,100 employees. Gray has lived and worked in five different countries, been a CEO, and accumulated more than 25 years of experience on nonprofit and for-profit boards. He brings experience in executive coaching, strategic planning, and advising boards of directors and business owners. As a Certified Exit Planning Advisor (CEPA®), Gray helps business owners plan in advance for future transitions to ensure that their business, personal, and financial objectives will be achieved. Gray is a U.S. Army veteran and holds a B.S. from Cornell University, an M.B.A. from Harvard University, and an M.A.R. from Westminster Theological Seminary.