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@example.com. Reach Craig Johnson, president and CEO of Franklin Bank, at firstname.lastname@example.org or (248) 386-9860.