Exit Planning for Closely Held Businesses: Where Do You Begin?

Exit Planning

Exit Planning for Closely Held Businesses: Where Do You Begin?

Exit Planning

Closely held businesses come with their own brand of benefits and challenges. Since there are generally only a few stockholders, often family members, owners are able to run their businesses their way. Conversely, there’s a strong need to have a stable exit plan in place to keep your legacy and success going after you exit your business. 

Exit planning can seem intimidating, but it’s an inevitable necessity as a closely held business owner, and often presents owners with some tough questions… starting with: What should I be asking first? According to Business Enterprise Institute, Inc.(BEI), a trusted advisory network for exit planning, there are three universal questions you need to answer when beginning your exit plan.


Universal Questions

Post-exit, how much cash will you need annually for yourself and your spouse?

To exit your business successfully, your plan must secure your financial security once you are no longer a part of your company. It’s overwhelming to examine your annual, post-exit needs on your own. Part of the exit planning process is understanding that it takes a team of advisors. A financial planner is crucial to the overall plan. Certified Exit Planners can recommend qualified financial planners if you don’t already have a trusted financial advisor. Your financial advisor can help you with a plan that gives you comfort knowing you are exiting with an annual income in place for you and your spouse to live comfortably, based on the estimated amount you need annually after your exit, and your approximate life expectancy. 

When do you want to leave your business?

Certified Exit Planners often get the same answer to this question: within the next five years. Five years is not an unrealistic goal for many businesses, but this time frame can also be too comfortable. It’s long enough away to meet your exit goals if planning is in place, but it’s far enough away to become a “back-burner” issue. One of the requirements for knowing the amount of time you need to exit your business comes down to basic math. When planning for your post-exit income, you need to assess your asset gap: your post-exit needs minus your current business worth. Part of your exit plan will be formulating and implementing a timeline that allows you to bridge the gap before your exit. You may find you don’t need the full five years, or you may find, in reality, you need more than five years to bridge the asset gap and exit comfortably.

Who will be taking over your business?

According to BEI’s 2016 survey on exit path considerations, 59% of business owners surveyed favored a sale to a third-party buyer, 31% were considering selling to management or employees, 30% were considering a transfer to a child/children, 18% saw closing the business as an option, and 6% were considering a sale to an ESOP. Each exit path comes with pros and cons, as with any major decision. A third party purchase, for example, can mean a full payout, while transferring to family may mean a more complex payment plan over a long period of time. 


A Question of Values

After the foundation for your exit is in place, continued planning about the future of your company comes into focus. Part of what helps many business owners make a decision on their successor is actually based on the owner’s value system.

How do you envision the future of your company?

Perhaps you’re more concerned with family harmony and owner legacy upon your exit, and your plan may grow around your desire to keep the business under family management. Maybe the main goal is maintaining the growth of your business, or making sure the new owner can take your business to bigger and better places. Your employees and community impact may be your primary concerns, and you may be considering an ESOP or a charitable option. Assess where your values lie. Building goals based on your values will give you peace of mind in exiting the business you worked to build and upholding the legacy you want to leave.


Getting Started

Take a moment to examine the areas of your exit plan that need to be addressed using the Altus Exit Strategies Smart Exit Planning: Ready or Not? Assessment

The professionals at Altus Exit Strategies, a wholly owned subsidiary of Albin, Randall & Bennett, are industry leaders here to help your closely held business through the Exit Planning process and other succession planning needs. Contact us to discuss a strategy for getting started.


by David Jean

More Insights on