Succession--planning your exit strategy.

• Author: Rood, Clair A.
• Position: UB Voices By CBIZ MHM

Having a clear business exit strategy in place will allow you to focus on building your business toward specific, personal goals. Knowing how much you'll need to fund your preferred lifestyle, when you will need it, and how you expect to transition out of your business will add clarity to your business plan and operating strategy. Does your succession plan include transitioning the business to family members? Considerations include: How the transition will be funded; Who will assume leadership; How control will be divided; How much control--if any--you want to retain; Protection of family assets; Family members who are not involved in the business; Implementing an exit strategy, if necessary, before your heirs are ready to take over the business; Involvement of other key employees and stakeholders.

While developing your exit strategy, whether through sale or transition, it's important to understand what you will need in terms of economic resources, and what options will provide those resources. The value you MUST have to live without the business drives the value you MUST obtain when you transition out of your business. WHEN that value must be obtained, and HOW that value will be sustained, depends on your personal desires and is a key variable in the planning process. Being specific about how much your business must be worth and when you plan to transition out of your business adds clarity to your exit strategy and directs your business plan toward targeted growth objectives.

For many business owners, the amount they MUST have to be able to live without their business is an amount that will provide them with financial freedom for the rest of their lives. A common definition of financial freedom is the economic resources required to allow us to do those things we want to do, when we want to do them (i.e., enough to fund your desired lifestyle and provide for others as you desire).

To determine what you will need in order to be financially independent, you must project your future lifestyle expenditures (in today's dollars), inflation rates, taxes, and your sources of income. Because your estimate of future expenses will drive your definition of financial freedom and ultimately the value you will need to derive from the sale or transition of your business, you will want to give it due consideration. Consider your day-to-day living expenses, expenses currently born by the company, the cost of future big ticket items such as boats, cars...