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Avoid These Pitfalls: 5 Common Business Exit Planning Mistakes

Avoid These Pitfalls: 5 Common Business Exit Planning Mistakes

| February 13, 2024

If you’re a typical business owner, chances are a hefty chunk of your wealth is tied up in your business. So, when it comes to passing the torch to a family member or finding a buyer down the road, you’ll want the process to be smoother than a well-oiled machine. 

At Horizon Planning Group, we’re here to guide entrepreneurs like you through the complex process of exit planning. Let’s discuss the top five common mistakes we’ve seen time and again at our firm—and how you can avoid them.

Misunderstanding What Makes Your Business Valuable

Putting a price tag on your family business isn’t as simple as you might think. While you may have an emotional connection to the business you’ve built, your buyer likely doesn’t. When you’re not clear on what makes your business valuable, you could undervalue or overvalue your business.

To better understand how much value your business holds, you’ll want to consider these factors: 

  • Customer base
  • Cash flow
  • A strong management team
  • Physical assets
  • Intellectual property and digital assets

These are just some of the essential parts of your business that a potential buyer might include in their decision-making process of purchasing your company. For an impartial valuation of your business, start with an informal business valuation. 

Doing an informal version of this step first could be less expensive than the formal version and provide you with a basis to work from. With a general idea of how much your business is worth, you can identify potential gaps and make necessary improvements to increase the business value to reach your monetary goals from the sale. 

Delayed Exit Planning

A costly mistake many business owners make is putting off their exit planning. The components of a successful exit plan include several moving parts that require an adequate amount of time to institute. 

  • Strategizing and implementing the plan
  • Getting the most value from your business
  • Mitigating taxes
  • Aligning your personal wealth with income sources outside of the business. 

Even if you don’t plan on stepping back from your business anytime soon, you can take some pressure off your future self by exit planning well ahead of time. Some tax-efficient strategies for selling a business require over a year or two of advanced exit planning. Even without a sale in the immediate future, it’s never too early to meet with experienced advisors

Being Irreplaceable in Your Business

While it feels good to be needed, a major selling point of your business is how transferable it is to new ownership. Self-managing companies are more marketable to potential buyers since the owner is not critical to the business’s future viability. You’ll want to assess how your business runs from these standpoints to determine how transferable your business is: 

  • Are you the face of your business?
  • How much responsibility do you carry on a daily basis?
  • Do you have a strong dependable management team?
  • Does your business have established processes and systems in place?
  • Are you the only one with specialized skills or knowledge needed to run the business?

It could just be time to move on to the next phase of your life, or a devastating event could have rendered you unable to continue managing your business. Either way, a successful exit plan facilitates the smooth transfer or effective sale of your business while retaining its value—another reason why starting sooner rather than later is important.

Not Having a Clear Reason for Selling

As a business owner, you might be more focused on the day-to-day rather than the long-term view of your business. While the proceeds from the sale are an obvious benefit of exit planning that leads to a sale, you may want to consider the other reasons behind the decision. 

If financial security is the only reason you’re looking to sell, you could work with a financial planner to identify other methods that don’t involve selling. However, if health or family reasons are behind your exit, then it may be a valid choice. Without a clear understanding of why you want to exit your business, you could regret your decision down the line. 

Not Seeking Professional Assistance

Working with a financial advisor you trust is a great way to start the exit planning or succession planning process, as preparing for the sale of your business takes careful consideration around multiple aspects of your company. 

The team behind you (or lack thereof) can make or break your business sale. In addition to the skill and knowledge of a financial advisor, you may need to involve an attorney, business broker, insurance professional, and a CPA to assist in the various parts of the sale or business transfer. 

Ease the Burden of Selling a Business

Opting to sell or transfer your business is a significant decision that requires careful consideration and planning. We at Horizon Planning Group understand the complexities involved in establishing a successful exit strategy for your business. As dedicated professionals committed to your best interests, we aim to alleviate the pressure of planning for your financial future. 

If you’re prepared to strategize your business succession plan, schedule an introductory meeting online or reach out to me at (770) 627-4157 or to get started. 

About Garrett

Garrett L. Holcombe is president at Horizon Planning Group, a full-service financial planning team committed to always doing what’s right for their clients. With over a decade of experience, Garrett specializes in serving small business owners, giving them a step-by-step process to help them overcome the challenges they face every day and take advantage of the opportunities available to them. His vast knowledge and dedication to his clients allows him to tailor a plan to his clients’ needs and goals, whether that’s creating a start-up plan, financing and tax strategies, employee benefits, and more—all so that his business owner clients can experience confidence in their financial future. Garrett is known for his passion for education. He takes on the role of a teacher so he can help his clients feel empowered about their decisions and understand their financial situation thoroughly. He wants his clients to know that he’s always there for them, no matter what their questions or concerns are, and is always working behind the scenes to keep your plan moving forward. 

Garrett graduated from Kennesaw State University with a bachelor’s degree in political science and is a CERTIFIED FINANCIAL PLANNER™ professional. When he’s not serving his clients, Garrett loves spending time with his wife, Amber, and their two children, Samantha and Matthew. Garrett and Amber were one of the first foster homes with Goshen Homes, a foster care agency of Goshen Valley that specializes in keeping siblings together. They adopted their children through the foster care program. Garrett is heavily involved in his community, serving as an adult leader and the safety and training officer for Sea Scout Ship Southwinds 100, and is president of the Cherokee High School Band of Warriors Booster Club. He is part of the Woodstock Business Cub and an active member of his church. In his downtime, he loves cheering for the Braves and Georgia Bulldogs and is an avid Liverpool Football Club and Atlanta United fan. To learn more about Garrett, connect with him on LinkedIn.

This is for educational and informational purposes only and is not research or a recommendation regarding any security or investment strategy. 

The information given herein is taken from sources that IFP Advisors, LLC, dba Independent Financial Partners (IFP), IFP Securities LLC, dba Independent Financial Partners (IFP), and its advisors believe to be reliable, but it is not guaranteed by us as to accuracy or completeness. This is for informational purposes only and in no event should be construed as an offer to sell or solicitation of an offer to buy any securities or products. Please consult your tax and/or legal advisor before implementing any tax and/or legal related strategies mentioned in this publication as IFP does not provide tax and/or legal advice. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. This report may not be reproduced, distributed, or published by any person for any purpose without IFP’s express prior written consent.

Securities offered through IFP Securities, LLC, dba Independent Financial Partners (IFP), member FINRA/SIPC. Investment advice offered through IFP Advisors, LLC, dba Independent Financial Partners (IFP), a Registered Investment Advisor. IFP and Horizon Planning Group, Inc. are not affiliated. 

Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, and CFP® (with plaque design) in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.