Exit Planning Tools for Business Owners

Pat Ennis

An Often Neglected Means Of Protecting Business Value

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Protect The Business Most Valuable Asset

A compelling and common characteristic of successful business owners is optimism. The “glass is always half full” attitude results in the risk-taking, perseverance, and innovation it takes to build, grow, and protect a successful business. Like any personal strength, this optimism can quickly become a weakness when there is a need to plan for the gloomy business contingencies of death and disability. What happens to the business due to either of these less than optimistic events is the last thing an optimistic owner wants to think about.

Some might say that perhaps owners don’t care if the business fails due to their inconvenient incapacitation. However, our experience shows that most owners care about what happens to the business and its stakeholders. We also observe that the plan in place is often deficient. For example, one area most often overlooked is preparation for the owner’s potential permanent disability.

Is The Business Owner Protected?

It is fairly common for a business owner to have a level of life insurance protection (although often outdated or in need of review) to benefit their business as well as their family in the event of death. But it is not nearly as common to see the risk of permanent disability addressed adequately, if at all.

Becoming disabled for more than three months are greater than the chances of dying at every age:
     • Over one in four 20-year-olds will become disabled before reaching age 67. (1)
     • At Age 30 – the chances of disability are approximately 2.3 times greater than death
     • At Age 40 – the chances of disability are about twice that of death
     • And finally, at Age 50 – disability is 50 percent more likely than death (2)
     • Not only does the risk of disability rise as we get older, but the severity of any disability that is incurred also tends to increase with age (3)

Permanent disability (or death) and incapacitation would most likely have the same impact on your business as the loss of any key employee would have. All that you bring to the table makes the business a success. Experience, talents, knowledge, and relationships would all be tough to replace. There could also be additional challenges such as the loss of concerned stakeholders, weakening financial strength, bank financing re-examined, bonding capabilities interrupted, potential non-renewal of personally guaranteed leases, etc. All as a result of your not being able to work in the business.

Protect Business Value. Have a Plan.

The bottom line is, in the event of premature permanent disability or incapacitation, the value of the business could decrease significantly. All stakeholders are impacted. And the family, if dependent on the continual success of the business, is impacted similarly. Make sure to thoroughly thought through this risk with an insurance professional. Too often, it’s neglected entirely. Please note, you can contact us for any assistance needed.

Invest 15 Minutes and take our FREE Exit Readiness Assessment. We do not request any confidential information.

Pat Ennis is the President of ENNIS Legacy Partners (ennislp.com). The mission of ELP is to help business owners build value and exit on their own terms and conditions.

Endnotes:
(1) The Facts about Social Security’s Disability Program, Social Security Administration Publication No. 05-10570, January 2018.
(2) 1985 Commissioners’ Disability Individual Table A and 1980 Commissioners’ Standard Ordinary Mortality Table.
(3) Americans with Disabilities: 2010, U.S. Census Bureau, Current Population Reports, July 2012.

Succession Planning or Exit Planning? Small Business Owners Need Both!

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One of the questions we often hear from business owners is, “What is the difference between Succession Planning and Exit Planning?  Aren’t they the same thing?”  Surprisingly, they are not.  The next question usually is, “Which one do I need?” The answer is simple.  Whether the business is small or large, family-owned or not, astute business owners always need both.

succession planNearly $10 trillion dollars in business assets will be transferred globally in the next decade, according to Forbes Magazine.  Baby Boomers selling privately owned businesses or transferring them to family members will comprise much of that $10 trillion dollar transfer.  As the market becomes crowded with owners ready to sell, the advantage will go to those owners who have done their due diligence, considered all of their options, and planned for unexpected contingencies.

Succession Planning

Succession Planning focuses solely on transferring leadership inside the business from one generation to the next.  Succession plans identify key individuals within the organization who can be trained and mentored to someday take over as the existing business leaders exit.  Succession Planning is just one necessary aspect of a more comprehensive exit plan.

Exit Planning

Exit Planning incorporates succession planning with strategies for building transferrable value, reducing tax liability, preparing for unexpected contingencies, minimizing family stresses, and increasing the likelihood of a successful business transfer.  Exit plans also incorporate the personal and financial goals of the business owner, their spouse, and their family.  A prudent exit plan starts and ends with the long term business and personal objectives of the owner.

Plan Ahead for A Successful Exit

Succession plans and exit plans so share an important characteristic – neither should wait.  Business owners who eventually want to sell for top dollar with the least amount of trouble must start the planning process early enough to give it the thought and consideration it requires.   With the proper plans in place, you, the business owner, gains the ability to make critical long-term decisions that will significantly increase the likelihood of selling or transferring the business when you want, to whom you want, and for the price you want.

Pat Ennis is the President of ENNIS Legacy Partners (ennislp.com). The mission of ELP is to help business owners build value and exit on their own terms and conditions.

Exit Planning Checklist for 2020

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The beginning of a new year is a great time to review your Exit Planning Checklist. All business owners will stop being business owners at some point.  So, there is no better time to begin planning for the inevitable than the present.  The earlier you begin planning, the more options you will have for a successful exit.

exit planning checklistHowever, like any strategic plan, it can be difficult to know how and where to begin.  With the start of the new year it’s also an ideal time for us to publish a basic “To-Do List” that will serve you in considering that most significant event as a business owner…your future exit.

DECIDE WHERE YOU WANT TO GO

Establish Clear Goals and Objectives for Exit and Your Life After Exit.

  • When do you want to leave the business? Whom do you wish to transfer/sell the business to?
  • What are your values-based and legacy exit goals?
  • What is your post-exit “life-plan”? Business owners can often regret leaving when lacking a plan for life that replaces the sense of purpose and meaning they experienced in building their business.
  • Update your Personal Financial Plan. Find out how much $$$$ you will need post-exit to do all you want to do. Is there a gap?

ASSESS WHERE YOU ARE 

Without Accurate Data All Planning Becomes Meaningless.

  • Get an accurate Business Valuation. If the business is your largest asset shouldn’t you know what it really is worth to potential buyers?
  • Assess your business Value-Drivers and areas of Risk.
  • Review your Business Continuity Plan for life transitions and unexpected death or disability. Co-Owners would include a review of their Buy-Sell Agreement to ensure alignment with the current goals of all owners.
  • Review Estate Plan to ensure alignment with exit goals.

 DESIGN AND IMPLEMENT A PLAN

Build Transferable Value and Enjoy a Future Exit On Your Own Terms and Conditions.

  • Which Exit Route will best accomplish your goals? Sale to Third-Party | Sale to Insiders | Transfer to Family Members | Sale to ESOP | Absentee Owner.
  • Focus on growth and profitability today. At the core of tomorrow’s successful exit plan is today’s profitability and plan for growth.
  • Strengthen business value drivers. An owner with a sellable business will have more freedom in life and options for exit.
  • Update a strategic financial plan for the business.
  • Do you have the right Team of Experienced Advisors for plan design and implementation?
  • Who will Manage the Exit Planning Project?

The most important thing you could do in 2020 would be to GET STARTED AND GET HELP if you have yet to do so.  If you wait until you’re ready to exit to begin planning, you won’t be ready and neither will your business.  Keep in mind, that “You don’t know what you don’t know” and, like in all other areas of life, that could end up being disastrous.

There is much at stake during this most significant event in your life as a business owner.  Take steps in 2020 to be as responsible and successful in planning your eventual exit as you have been in running your business. You can start with this Exit Planning Checklist.

Guest Contributor Pat Ennis is the President of ENNIS Legacy Partners (ennislp.com). The mission of ELP is to help business owners build value and exit on their own terms and conditions.

 

Exit Planning Choices Podcast

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I had a nice conversation, on exit planning choices, in 2019 with Pat Ennis of Ennis Legacy Partners and Walter H. Deyhle of Gelman, Rosenberg and Freeman,CPAs, both in Maryland. Learn about your choices when preparing to create and implement your exit plan. Exit planning is about choices, get to know the choices that you have. Thanks for the invitation, Pat!

You can listen (25 minutes) here. I hope that you enjoy.

Invest 15 Minutes and take our FREE Exit Readiness Assessment. We do not request any confidential information.

John F. Dini develops transition and succession strategies that allow business owners to exit their companies on their own schedule, with the proceeds they seek and complete control over the process. He takes a coaching approach to client engagements, focusing on helping owners of companies with $1M to $250M in revenue achieve both their desired lifestyles and legacies