Exit planning is a strategy that is used to exit from a privately held organization.Which includes analysis of revenue,legal and tax details.Exit planning helps in maximizing the value of business before selling it.
Reduce or delay the total taxes payable;
- Maximizes the valuation and cash proceeds received at closing.
- Allows for smooth/Enables operational and management transitions, and
- Control the timing and terms of their exit.
Stage One – Establishing Owner Objectives
What might you want to accomplish with your exit?
For some business owners , it isn't just a certain thing. Regularly, it is money which is related to security or expansion. It could be a longing desire to include children or to reward key employees . Maybe it's to accomplish the opportunity to enter the following part of life. Whatever it is for you, it's significant that you spell out your objectives.
Stage Two – Financial and Mental Readiness
Do you know what it would take to be financially independent outside your company? A thorough analysis will determine the financial resources necessary to sustain your lifestyle after exit.The outcomes characterize the Value Gap between your anticipated resources and what's expected to meet your objectives. Additionally, you must assess your mental readiness for exit. What will you do after exit? How do you feel about being identified as someone other than the owner of your firm? The mind game is often more challenging than what owners think.
Stage Three – Discover Which Type of Owner You Are
Business owners normally fall into four categories depending on their budget/ projected assets and what’s needed to meet your goals. Your exit options become more clear once you know what type of owner you are and the corresponding transfer methods. Who do you resemble?
- Rich and Ready To Go – Financially you are strong, and mentally you can’t wait to start life’s next chapter.
- Wealthy But Enjoy Work – You are financially set, but you like working and don’t want to retire.
- Stay and Grow – You’re not financially that strong , and are happy to work to build net worth and company value.
- Get Me Out Now – Your needs require much from the business, but mentally you are headed for the exit.
Step Four – Learn Your Exit Options
If you are like most owners, you know very little about ESOPs, Private Equity Recaps, Management Buyouts, Gifting Strategies or the myriad ways to structure a Third Party Sale.
Step Five – Analyze the Value of Each Option
You must run the numbers for each of the applicable exit options. You’ll learn about the range of values associated with private companies, the impact of taxes and fees on any transaction, and the cash flow results for both you and the business throughout the exit. You’ll want to know this well before executing the plan.
Step Six – Execute Your Strategy – Protect Your Wealth
You’ve chosen your option, made your plan, and now it’s time to execute. Assemble your team, plan for contingencies, and take action. You’ll learn how to help protect your wealth from estate taxes and provide for plan completion in the event of an untimely death or disability. This final step provides the written action plan for you and your advisory team to use as the roadmap for making your goals a reality.
Advantages of Exit planning:
- Disaster proof’s your business
You purchase insurance to shield the organization from typhoons, floods and fire accidents. You introduce security frameworks to guard the organization from theft. What's more, you back up information to an off-site area to protect your business' restrictive data.
Numerous entrepreneurs get so occupied with the everyday tasks of their organization that they neglect to make exit planning to make as their priority. These pioneers may believe they're too young to even think about being hit with a genuine disease.
Exit planning is simply another step in your senior leadership’s strategy to protect the company – whether you are physically there for its long-term success or not. Think of it as business continuity insurance that requires grooming employees.
- Distinguishes your most-qualified future pioneers
Formal exit planning requires your organization to:
Distinguish those positions most basic to the future accomplishment of the organization. These might not all be C-suite positions.
Converse with potential applicants about their interests and career plans.
- Makes structure for improvement
When your organization has distinguished that Sally, Bob and Bruce are keen on moving into senior positions, you can recognize any competency holes and start prepping them for their possible progression.
- Keeps additional eyes on work
When your top prospects are being prepped, your organization gets an opportunity to harvest maybe its best tool to develop and flourish.This happens when a junior manager is sitting and talking with their senior leader about why they’re doing things a particular way.
The basic procedure of clarifying business as usual uncovers shortcoming in procedures and strategies, revealed deals openings and open doors for positive change. This characteristic procedure enables your organization to keep an additional arrangement of eyes on its senior jobs and supports addressing of the corporate standards that may have turned out to be dated or wasteful.
In this way, succession planning results in future-proofing your company.
- Keeps up brand character
You oftentimes hear updates on CEOs who come into an organization from the outside with extraordinary guarantee, just to flop in a brief timeframe. Tragically, such heartbreaking contracts regularly harm the organization's notoriety and long haul development alongside.
This normally happens in light of the fact that the outsider CEO doesn't comprehend the key qualities and mission of their new organization since they haven't "grown up" in it. Needing to put their very own stamp on the business, or neglecting to get a handle on client needs, they move the association away from its center image.
Exit Planning enables your organization to maintain a strategic distance from this. By recognizing and preparing an internal successor, your organization guarantees it will be driven by somebody who offers its qualities and profoundly comprehend the organization's reputation , its clients and its workers since they've lived it themselves.