Exit planning is an intricate process
where business and personal matters
intersect. As an owner considers what’s next, the question itself may prompt
a blank stare: What is life without the business, especially when it has consumed all
waking hours? After exiting, how will the
owner maintain a desirable lifestyle? How
much is a generations-old company worth
to the market, and is the right move to find
a buyer or train key managers to assume C-level positions?
When planning an exit, business gets personal. Designing a productive, comfortable
business “afterlife” is the goal.
“Business owners often turn to their
accountants first, or maybe they discuss
succession with a life insurance agent, but
they really need to talk to an adviser that
specializes in exit planning,” says Craig
Johnson, president and CEO of Franklin
Bank in Southfield, Mich.
Johnson turns this topic over to Franklin
Bank’s wealth planning and advisory arm,
APB Financial Group, Ltd. and President
Mero Capo, who cover five key steps to
exit planning in the following months.
Those include: establish goals and objectives, determine the value of your business,
protect the value of the business, sell your
business, and wealth management.
Smart Business asked Capo to discuss
the importance of gathering a trusted team
to usher you through the exit strategy
process, and why it’s important to start the
process well before your retirement target.
Who should be considering an exit strategy
now?
That’s a good question, because most
business owners set a target retirement
date, then think about selling or passing on
the business a couple years before that
date. You can do this, but you may not maximize the value of your business and you
could sell yourself short in the retirement
plan department. Ideally, you should begin
designing an exit strategy at least five to 10
years prior to your desired retirement date.
For example, you may want to utilize an
ESOP (Employee Stock Ownership Plan)
to invest in a qualified retirement plan so it
is part of your assets when you retire. This
takes time. Also, you’ll assemble a team of
people to help you with this strategy.
Whom should this exit strategy team
include?
A common mistake business owners
make is only consulting with their certified
public accountant (CPA), or just asking a
life insurance agent about succession.
These are two key professionals, but limiting succession planning to just their
expertise will leave holes in an exit strategy. You need to assemble a team of people:
a business valuation expert, an attorney, a
CPA and an adviser to act as a quarterback.
This adviser should specialize in exit planning. That way, he or she can walk you
through the steps to developing and executing a strategy, and work as the team
mediator, in a sense. A qualified adviser
will pull together the group and hold each
accountable for seeing through the plan.
How does a business owner know if an adviser is qualified?
Find out who he or she will bring to the
table. Does the adviser already have a team
assembled that includes an attorney and
CPA? Interview an adviser and ask him or
her to walk you through the exit strategy
steps. You’ll be able to determine whether
this is a specialty based on how specific the
response is. Finally, always check credentials and be sure the adviser has a track
record in exit planning. One place to start
is by asking if your banker partners with a
wealth management firm.
Once a team is in place, what should owners
begin to do in the early stages of exit planning?
It is critical to establish goals and objectives. Do you want to pass the business to
family? Will you sell it to an outside entity
or to key employees? How involved do you
want to be after retiring? Some owners
want to remain on the board, while others
prefer to step out of the business completely. If the latter, how will you spend
your time? Personal planning is critical
because you’ll find that slowing down after
wearing the ‘owner’ hat for years is not so
easy. Finally, you must determine what you
need to sell the business to maintain the
lifestyle you choose. This is your homework before next month, when we discuss
valuing your business.
All these goals help determine your exit
timing and strategy. You want to plan your
exit strategy enough in advance that you
can take advantage of the best timing and
have the right people on your side.
MERO CAPO is president of APB Financial Group, Ltd., the
wealth planning and advisory arm of Franklin Bank. Reach him at
[email protected]. Reach Craig Johnson, president and
CEO of Franklin Bank, at [email protected] or (248) 386-9860.
