Small Business Financial Article
Rich Best has spent 28 years in the financial services industry, as an advisor, a managing partner, directors of training and marketing, and now as a consultant to the industry. Rich has written extensively on a broad range of personal finance topics and is published on several top financial sites. Recent books include The American Family Survival Bible and Annuity Facts Revealed: What You MUST Know Before You Invest.

Business Owner's Financial Plans Must Include an Exit Strategy

Business Owner's Financial Plans Must Include an Exit Strategy

For business owners, their business is core of their financial plan. It creates the income to fund their current and future life style, and for many, it is their largest asset. If their plan includes eventually selling or transferring their business, or simply transitioning out of the business, it must include a formal exit strategy that forms the blueprint for all exit planning decisions. The exit strategy should be developed well in advance of the planned exit date and include a concise statement of your personal, financial and business goals, prioritized by importance. No two exit strategies are alike; however, they all should contain the following components:

  • A target date for the exit
  • A plan for maximizing the value of the business
  • A determination of how to exchange the value of the business for cash in the most tax-efficient manner
  • A determination of whether the business is to be transferred internally or externally
  • A plan for ensuring the continuity of the business during the transition to new owners
  • A determination of the role, if any, the owner will have with the business during the transition and after the transfer
  • A plan for ensuring the financially security of the business owner and his family

After establishing your objectives for the business sale and your exit from the business, the next critical step is to plan for your own financial security. Of course, the most important element of this financial plan is to determine the amount of capital--either in a lump-sum amount or in installments, or both--you will need in order achieve the sale objectives and provide for your financially security.

Nothing short of a comprehensive assessment of your family’s needs and a thorough analysis of options will provide the accurate, bottom-line number you will need for a successful outcome. The projected capital to be received from the sale of the business should then be compared with your needs to identify any shortfalls.

  • Working with an independent financial advisor experienced in developing financial plans for business owners, you will have to consider all aspects of your financial future, including assessing your options for taking cash out of the business (all out or deferral), including all tax implications. In addition, you will have to develop:
  • A post-business capital spend-down plan based on available capital
  • An investment strategy designed to generate sufficient income while growing your assets
  • A risk management plan to protect against risk exposures, such as death, disability, personal liability, life longevity (the possibility of outliving your income and critical illness)
  • An estate plan for preserving and transferring assets with minimal cost to your family
  • A power of attorney and medical directives in the event you become incapacitated an unable to make financial or medical decisions

A comprehensive plan of this sort requires a team approach and a collaborative effort among advisors from different disciplines, such as;

  • A CPA to assist in developing post-sale tax strategies
  • An attorney to assist in developing an estate plan
  • A risk management specialist to assist in developing asset protection strategies
  • An independent insurance professional to assist in implementing financial, estate and asset protection strategies
  • An investment advisor to assist in developing a comprehensive investment strategy
  • A financial advisor to coordinate the planning and implementation of your other advisors’ strategies
  • A business valuator to help determine the value of the business and a sales price.

At some point, you will need to add a business intermediary to your team who will lead the effort to develop the sales strategy and facilitate the sales process. It is strongly recommended that you have your sales objectives and exit plan in place prior to engaging a business intermediary, as this person will be the key determinant in how he or she will advise you.


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