Taking the road to exit planning.

• Author: Lindenmayer, Will
• Position: Successful Exit Plan

There are more than 12 million businesses in the U.S., and over the next five to seven years, more than half of them will change hands. Of the six million owners who will sell their business in this period, most will not take specific steps to ensure a smooth transition from their ownership. Even the few owners who have attempted to plan for their exit find their efforts usually fall far short of a comprehensive exit plan.

Why? Two reasons most often cited by business owners are: being too focused on the company's day-to-day requirements to take the time to plan, and uncertainty over how to begin exit planning due to a lack of comfort with how the process actually works. The emergence over the past five years of exit planning as a defined, disciplined process has begun to show business owners how they can control their exits.

The Foundation of a Successful Exit Plan--The Seven-Step Process

The most effective exit planning process includes seven individual steps. Each step builds off the others, creating a comprehensive plan that guides the owner through the day he or she exits the business. These steps are designed to follow a sequential logic.

Step 1. Determine the owner's exact financial (cash) needs and personal goals for retirement. The key here is to be as detailed as possible in articulating the goals; the more specific the goals, the more specific and effective the exit plan.

Step 2. Understand the (cash) value of the business today. Ownership in the business is usually either/both an owner's most valuable (cash) asset, or the asset that is most likely to be the catalyst needed to realize the owner's personal goals.

Step 3. Identify specific, realizable steps to preserve, promote and protect the value of the company through the exit. The most common application of this step involves the motivation and retention of key employees, but might also include areas such as priming the pump to increase sales, taking measures to protect profit margins, shoring up financial reporting systems and dealing with potential liability issues.

Step 4. Explore selling the business to an outside party. This is often (sometimes mistakenly) viewed as the best option for maximizing financial objectives in an owner's exit. An important element within this step is to understand the tax consequences of a sale, and what might be done to maximize aftertax proceeds.

Step 5. Evaluate the dynamic of selling to an inside party (employees or family members) against...