Exit Planning Tools for Business Owners

Exit Planning

It’s Fall, or as Some Say, “Football Season” – How Succession and Exit Planning Mirror Winning the Big Game

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CEPA Info Graphic

Fall brings crisp air, colorful leaves, and the undeniable excitement of football season. And much like football, where great individual players exist, the game’s heart and soul lie in teamwork. No matter how talented a quarterback or running back is, they can’t win the game alone. Victory requires everyone—linemen, defense, special teams, and coaches—working together toward a shared goal.

Succession and exit planning for business owners are strikingly similar. Just as a quarterback can’t win without a strong team, an owner can’t craft a successful exit strategy solo. Many owners are so wrapped up in running their day-to-day operations that they never stop to think about their “end game.” And like a team without a playbook, they often delay these crucial conversations until it’s too late.

According to the first-ever “2024 State of Succession and Exit Planning in the Horticulture Industry” survey by PivotPoint Business Solutions, we’re seeing too many businesses fumble the ball. The data shows an alarming trend of closures and liquidations—avoidable with proper planning. Succession planning, like football, is a team sport, and many businesses are unprepared for the big win.

Ideally, business owners start with the end in mind. But the survey reveals that our readiness score as an industry is a mere 3 out of 10. Even worse, 32% of respondents don’t have an exit plan at all, and of those wanting to exit within two years, 55% haven’t started preparing. The message is clear: You can’t do it alone.

Building Your Winning Team

In football, every successful team needs coaches and players making the right moves to cross the goal line. For a business owner, your trusted advisors are your coaching staff, and they play an equally pivotal role in guiding you to a successful exit. Creating a well-structured exit plan that maximizes your business’s value can take 3-5 years, but with the right team, you’ll be prepared for anything—from an unexpected third-party offer to a forced exit due to unforeseen events like death, disability, divorce, business disagreements between owners, or business distress.

So, who are the key players on your exit planning team, and how do they help you score the winning touchdown?

Your Trusted Advisors: The Coaching Staff

Just like in football, you need a variety of coaches or experts working in harmony to achieve success. Here’s a breakdown of the key advisors every owner should have:

The Accountant (CPA):

Often the most trusted advisor, your accountant knows your financial history inside out. They ensure clean financials, which are crucial for any exit plan. Survey results show that 25% of respondents rely on their accountant the most.

The Attorney:

Your legal coach is critical in drafting key agreements like Shareholder and Buy-Sell for example, and reviewing any Letters of Intent or offers. With 17% of respondents citing their attorney as a top advisor, their role in securing the “game-winning” contracts and estate planning is indispensable.

The Financial Planner:

Only 12% of business owners look to their financial planner for guidance, but they should. Financial readiness is a key factor in your transition. In fact, 70% of owners are unsure of their after-tax income needs post-transition. Many owners face financial uncertainty, rating their financial readiness 58 out of 100, well below our target of 80. A financial planner helps you plan for retirement, ensuring you have enough resources to live comfortably once you exit.

Certified Exit Plan Advisor (CEPA):

Your CEPA is your quarterback who calls the plays in your business transition. This advisor coordinates all the moving parts, bringing together your personal, business, and financial goals to ensure a smooth exit. Shockingly, only 7% of survey respondents have a CEPA, but they are key to keeping your exit strategy on track.

Your CEPA leads the team through three critical phases:

  1. Discovery-Understanding your personal goals, business goals, and financial situation, including a business valuation.
  2. Preparation-Building value, mitigating risks, and setting up your financial future.
  3. Decision-Guiding you to confidently choose between growing or selling, with everything in place for a smooth transition.

Your Spouse is Not Your Trusted Exit Advisor

The survey found that many owners consider their spouse their most trusted advisor. While it’s wonderful to have that partnership in life, exit planning requires external, specialized guidance. Just as in football, where you likely wouldn’t ask a family member to coach the Super Bowl, you need objective advisors to give you the best shot at success. They will help manage the complex legal, financial, and operational components of your exit.

Your Internal Team: The Key Players

In football, even the best coaches need skilled players to execute the game plan. The same goes for your business. Your internal management team plays a critical role in driving the business forward. Luckily, 80% of survey respondents have already shared their plans with key team members. Regular communication with your team—whether family, employees, or potential successors—is essential to prevent misunderstandings and to align everyone on business goals and timelines.

Just as football teams develop a strategy for each play, you need a plan to retain these key players and keep your business running smoothly as you move toward your transition. Next month we’ll talk more about how to ensure you have the right people on your team and what it takes to retain these key players as you move down your path to victory.

Teamwork Makes the Dream Work

Only 33% of business owners are currently working with advisors to prepare for their exit. But just as no football team can win the Super Bowl with only one star player, you can’t craft an effective exit strategy alone. Exit planning is a team effort that requires insights from multiple stakeholders—advisors, management, and family members. Each brings expertise in a specific area, helping you navigate the transition successfully.

Ultimately, winning in business transition is like winning the big game—it takes teamwork, strategy, and preparation. With the right trusted advisors and players by your side, you’ll be well on your way to securing your business’s legacy and crossing that finish line victoriously.


Chris Cimaglio, CEPA®, Certified Value Builder™, Accredited Value Guide, PEMA® is the Managing Director at PivotPoint Business Solutions. Contact Chris at chris@pivotpointbizsolutions.com.

A Cash Balance Plan May be a Great Tax- Reducing Benefit to A Business Owner

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Like most business owners, you’re likely exploring ways to strategically grow your revenue, increase profits, and minimize taxes. This is a common goal. As your cash flows increase, you may find yourself seeking ways to reduce your growing tax burden. Often, we explore sensible capital expenditures or business reinvestments that align with your strategic goals, which is a healthy exercise.

Growing the Business, Graph on top if ipad with eyeglassesBut sometimes, business owners could benefit from strategies to accumulate personal assets and reduce taxes. Depending on specific criteria, a Cash Balance Plan could be a powerful tool to achieve this objective and significantly reduce your tax burden.

What is a Cash Balance Plan? It’s an ERISA-based hybrid plan, a unique blend of a Defined Benefit Plan and a Money Purchase Plan. To plan participants, it resembles a Defined Contribution Plan, like a 401(k), but the IRS treats it as a Defined Benefit Plan. This plan operates alongside your 401(k)/ Profit Sharing Plan, offering an additional tax-deferral strategy for accumulating retirement assets.

Cash Balance Plans are effective tax-qualified retirement funding vehicles designed to help business owners aggressively accumulate retirement assets. They are beneficial if they have fallen behind in their retirement savings goals.

Like a Money Purchase Plan, a Cash Balance Plan has fixed contributions for each participant each year. Additionally, plan participants receive interest credits based on the established interest rate defined in the plan. Often viewed as a feature of flexibility, an increase or a decrease in the value of the investments within the plan does not affect the benefits promised to the participants. Gains and losses from the plan’s investments reduce or increase the plan sponsors contributions. The employer oversees the risk/reward design of the investments with the assistance of a professional investment advisor. A portfolio is designed for reasonable and relatively stable long-term growth.

Here are some itemized potential benefits for the business owner:

  1. Significant tax savings. The funds contributed to the plan in the first year of implementation are tax-deductible and considered an ” above-the-line” deduction. Also, employees with high earnings may be able to accelerate their savings. Administration fees may be tax-deductible.
     
  2. Protection of assets from creditors. The Cash Balance Plan is a tax-qualified ERISA plan, so it is protected from creditors.
     
  3. The plan can help attract and retain valued employees. Many younger employees may find an employer-funded retirement plan attractive.
     
  4. Cash Balance Plans can help business owners accelerate their retirement savings. In 2024, the potential contribution to a Cash balance plan can be $376,000 (for participants aged 66 -70 and in a top income bracket). See the table below for contribution limits and potential tax savings.
     

Below is a table that illustrates the maximum contribution for a 401(k) based on age, along with the profit sharing and potential contribution of the Cash Balance Plan. The CB contribution is based on age and income.
Source: Cash Balance 101: FuturePlan by Ascensus

Assets in the plan are not allocated into separate accounts for the participants, and the participants cannot direct the investments within the plan. The investments and contributions are in a pooled fund managed by the Trustees.

One of the unique features of a Cash Balance Plan is its age-discriminatory aspect. The older the business owner, the more income they can allocate to the plan pre-tax. Conversely, the younger the other plan participants (employees), the lower the contribution requirements are to the sponsor (owner). This makes it ideal for a company where the owner is considerably older than the other plan participants, especially if the owner is in their 50s or older.

Another ideal scenario for a Cash Balance Plan is when the owner’s or potential income is significantly higher than the other employees. This income disparity is a key factor in the plan’s effectiveness and should be considered when evaluating its suitability for your business. Some requirements must be met. The CB plan can be implemented if the annual non-discrimination requirements are satisfied. At a minimum, a CB plan is required to cover 40% of employees or 50 employees, whichever is less.

Some owners look for ways to increase their cash flow to help fund a Cash Balance Plan, such as R&D Tax Credits, Employee Retention Credits, etc. However, these need to be vetted by a tax credit specialist, and current laws and eligibility must be followed carefully. But suppose the conditions are suitable for the owner. In that case, they are interested in saving on taxes and accelerating retirement savings, and it helps retain employees; it might make sense to perform an employee census-based analysis.

Steven Zeller is a Certified Business Exit Planner, Certified Financial Planner, Accredited Investment Fiduciary, and Co-Founder and President of Zeller Kern Wealth Advisors. He advises business owners with developing exit plans, increasing business value, employee retention, executive bonus plans, etc. He can be reached at szeller@zellerkern.com

Owning Change: Continuity Planning for Businesses in Ownership Transitions

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Ownership changes are critical moments in the life of any business. Whether due to the untimely death of an owner, the departure of a sole owner, or the exit of a co-owner in a multi-owner business, these transitions present unique challenges that require thoughtful planning. Effective continuity planning can help ensure that a business not only survives but thrives through these transitions.

Continuity Planning Following the Death of an Owner

The sudden death of an owner can be a devastating event for any business, particularly for small to medium-sized enterprises (SMEs). Without a well-thought-out continuity plan, the business may face significant disruption, which could lead to operational paralysis, loss of key clients, and eventual closure. A few key considerations for this scenario include:

Succession Planning: One of the most critical components of a continuity plan in this scenario is a detailed succession plan. This plan should identify who will take over the owner’s responsibilities and how the transition will occur.

Business Continuity Instructions (BCI): BCIs provide the deceased owner’s family and key employees with a roadmap for managing the business in the immediate aftermath of the owner’s death. These instructions should include contact information for trusted advisors, detailed plans for continuing operations, and clear guidance on the eventual transfer of ownership.

Financial Considerations: Life insurance policies can provide the necessary funds to maintain operations, pay off debts, and support the transition to new ownership. These funds can also be used to finance a Stay Bonus Plan to retain key employees during the transition.

Continuity Planning for Owner Departure in a Sole Proprietorship

In sole proprietorships, the departure of the owner, whether due to retirement, sale of the business, or other reasons, poses a significant challenge. Unlike multi-owner businesses, there is no one to automatically take over, making advance planning crucial. Important steps in this scenario include:

Identifying a Successor: For sole proprietors, it’s vital to identify and prepare a successor well before departure. This could be a family member, a key employee, or an external buyer. The process of grooming a successor should involve training and gradually increasing their responsibilities to ensure they are ready to take over when the time comes.

Business Valuation: Regular business valuation is essential to ensure that the owner receives fair compensation upon exiting the business. An accurate valuation also helps potential successors or buyers understand the financial health of the business and its growth prospects.

Transition Planning: A comprehensive transition plan should outline the steps for transferring ownership, including legal and financial considerations. This plan should be shared with all stakeholders to ensure a smooth handover and to minimize disruption to business operations.

Continuity Planning for Departure of One Owner in a Co-Owned Business

In businesses with multiple owners, the departure of one owner can create tension and uncertainty, particularly if the remaining owners are unprepared. A well-drafted Buy-Sell Agreement is essential in these situations to govern the transition and ensure fairness to all parties.

Buy-Sell Agreement: This agreement should clearly define the terms under which an owner can exit the business, including how their share will be valued and purchased by the remaining owners. The agreement should also outline the payment terms and any financing arrangements necessary to complete the buyout.

Valuation Methods: The Buy-Sell Agreement should specify an independent and fair valuation method for the departing owner’s share of the business. This helps prevent disputes and ensures that the process is transparent and equitable.

Impact on Business Operations: The departure of a co-owner may require a reassessment of the business’s strategic direction, particularly if the departing owner played a significant role in decision-making. It’s important for the remaining owners to communicate clearly with employees, clients, and other stakeholders to maintain confidence and stability during the transition.

Common Considerations

While each ownership transition scenario presents unique challenges, several common themes emerge:

Proactive Planning: Whether dealing with the death of an owner, the departure of a sole proprietor, or the exit of a co-owner, proactive planning is crucial. Waiting until a crisis occurs can lead to hasty decisions that may jeopardize the future of the business.

Legal and Financial Preparedness: In all scenarios, having the right legal and financial structures in place—such as succession plans, Buy-Sell Agreements, and life insurance policies—can mitigate risks and ensure a smoother transition.

Communication: Clear and consistent communication with all stakeholders is vital. Whether it’s sharing Business Continuity Instructions with family members or discussing the terms of a Buy-Sell Agreement with co-owners, transparency helps prevent misunderstandings and builds trust.

Ownership transitions are inevitable, but with the right continuity planning, businesses can navigate these changes successfully. By understanding the unique challenges of each scenario and taking proactive steps to address them, business owners and financial managers can ensure that their companies remain resilient and poised for continued success. Contact an exit planning consultant to develop a continuity plan that works for your individual business needs.

 

David Jean is the Director of Altus Exit Strategies and a Principal at Albin, Randall & Bennett, where he is also the Practice Leader of the Succession Planning, Business Advisory, and Construction & Real Estate Services Teams. David works with business owners who want to improve their business’s value before they sell through the Seven-Step Exit Planning Preparation™ process. He has worked with companies from $5 million to $50 million in revenue across a range of industries. He can be reached at djean@arbcpa.com.

My Interview with Jerry West on Management

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I once had the thrill of interviewing Jerry West on management. He was “The Logo” for the NBA, although back then they didn’t advertise him as such. Only the Laker followers knew for sure.

In 1989 the “Showtime” Lakers were coming off back-to-back championships.  Pat Riley was a year away from his first of three Coach of the Year awards. Jerry was the GM. Many people don’t know this, but starting when Jerry West was drafted in 1960 until he stepped out of the GM role in 2002, the Lakers only missed the playoffs twice. Those seasons (74-75 and 75-76) were the only two seasons out of 42 that West was not on the Laker payroll.

In 1989 I was enrolled in Pepperdine’s Executive MBA program. Our class assignment was to interview a top executive with whom we had no previous relationship or introduction about his management style.

Mr. West Returns the Call

I was an avid Laker fan, and I thought “He can only say no.” So I called the Forum, asked for West’s office, and left him a voicemail. A few hours later our receptionist called me and said “One of your friends is goofing around on the phone. He says he’s Jerry West.” Obviously, I took the call.

We met in his office underneath the stands in the Forum. It may have been 12 x 12 feet, but the magnetic boards lining the wall made it seem much smaller. Each board had an NBA team’s name on top, and magnetic placards for every player currently on that team.

I asked Jerry about how he approached the management of the Lakers. He gestured to the boards. “My job as General Manager is to put the best team on the floor that I can. I look at these boards every day and think who might be better on the Lakers? Then I look at other teams and think who they might have that will convince the team with the player I want to give him up.”

He went on to say that he was sure that business executives weren’t as singularly focused as he was. He thought about the Lakers from the moment he woke until going to sleep at night. I didn’t try to convince him that he matched the profile of many small business owners.

Jerry West on Management

As a manager, Jerry said that he believed that if you hired someone to do a job, then you needed to step back and let them do it. Pat Riley was a broadcaster with no coaching background. Jerry said that the problem with experienced coaches is that they had already been fired once. West took a flyer on Riley, but to appease the media he agreed to sit on the bench to lend advice.

“It was crazy. Riley had no idea what he was doing. He’d call to put guys in the game that we had cut the week before or to sub in guys who were already on the floor. I lasted about three games on the bench. I had to go to my office and let him learn on his own. The alternative was that I’d kill him.”

One poignant moment was when he discussed his family. I can’t imagine the burden being in the public eye brought with it. He talked about his children being bullied on the playground because the team was on a losing streak. Even worse was having his wife accosted in the supermarket aisle by a fan who was incensed over a trade.

One of his greatest tips was when we discussed keeping things in perspective. He showed me two file folders in his desk drawer. “One of these has the most complimentary of the letters I get when the team is doing well. They tell me I’m a genius. The other folder is the worst letters I get when the team is doing poorly. You can guess what they think of me.”

“Whenever we are on a streak, good or bad, I pull one of the letters from the file when we were doing the opposite. It reminds me that it wasn’t always the way it is today, and it will swing back sooner or later.”

Looking to the future

I wasn’t supposed to discuss the Lakers, but the fan in me couldn’t help it. Jerry had just drafted a guy from Yugoslavia that no one had heard of. This was well before European players dominated the top draft picks. I had to ask him about his choice.

“Wait until you see him,” West said. “Seven feet tall and he can pass the ball like Magic.”

He became the starting Laker center for the next seven years. Then Jerry West traded Vlade Divac to the Charlotte Hornets on draft night of 1996 to get the 13th pick, a teenager named Kobe Bryant.

Always looking at those boards.

We’ll miss you, Jerry.

 

 
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.

Seize The Moment: Strategically Timing Your Retirement When Selling Your Business

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Time is money finance concept with old vintage clocks, dollar bills and magnifying glass.

Imagine standing at the edge of a cliff, ready to take a leap into a new chapter of your life. That’s retirement. Now, picture this adventure interwoven with the sale of your business. Exciting, right? Just like any daring journey, timing is everything.

Let’s talk about finding that perfect moment to embark on your retirement while selling your business. It’s not just about calendars and clocks; it’s about aligning the stars to make the most of your hard-earned efforts.

First off, consider the market trends. Are you in a booming phase where your business value is at its peak? Capitalise on that surge to secure a comfortable retirement fund. On the flip side, if the market is shaky, give it time to rebound before exiting.

But it’s not just external factors — your internal readiness matters too. Ask yourself: Have you achieved your personal and financial goals? Are you emotionally prepared to let go of the business you’ve nurtured? Your gut feeling often knows best.

Also, think about your successor. Is there someone you’ve been grooming to take the reins? Timing your retirement when your successor is ready can ensure a smooth transition for both you and your business.

Let’s talk about legacy. How do you envision your business carrying on without you? Timing your retirement allows you to leave behind a legacy that echoes your values and vision. It’s like passing the baton in a relay race — a moment of seamless exchange ensuring the race continues strong.

In the end, timing your retirement while selling your business is like orchestrating a symphony — a blend of external harmony and internal rhythm. When you feel that crescendo building, that’s when you know it’s time to take that leap.