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Business Owner Exit–Succession Planning

Business Owner Exit–Succession Planning

| March 08, 2023

As a business owner, you have worked tirelessly for years to build your company into the success it is today. While it may feel premature to think about an exit strategy, it is a critical element of your business plan. The process of exiting your business can take many forms, including an initial public offering, a strategic acquisition, or a management buyout. However, the key to a successful exit is advanced planning.

Unfortunately, 48% of business owners do not have a formal exit plan in place. Creating an exit strategy has numerous benefits. It can help you identify areas of improvement to increase the value of your business, help you become more organized and structured in your operations, and potentially increase your revenue and profits before your sale. This is why at Horizon Planning Group, I love to serve small business owners, and especially enjoy creating a strategic exit-planning process that covers the following stages.

Stage 1: Initial Discovery Meeting

It’s essential that the first step involves defining clearly stated exit objectives and goals. Your succession planning will be much easier and clearer if we know exactly where you want your business to go in the future. Some questions to consider include:

  • What is your desired departure date?
  • What are your income/financial security requirements?
  • What exit routes are open to you?

Stage 2: Information Gathering

Once we know where you want to go, it’s time to delve into your personal financial situation. We’ll want to get details on a variety of topics, including:

  • Review existing financial, estate, and business plans.
  • Determine gaps in each of these plans, if any.
  • Discuss your personal wants and needs both before the succession, as well as afterwards.
  • Review bank, investment and retirement accounts, including the balances and investment strategy. 
  • Evaluate any unique investments you may own, or offer to employees. Items like an employee stock option program (ESOP) can be a critical asset to consider when creating your succession plan (more on this topic in Stage 4).

Stage 3: Determination of Business Value

Now it’s time to see what we can expect from the business based on how it’s currently structured, using a realistic analysis. Following that, we determine drivers that can increase the value of the business. Core parts of this stage are to:

  • Analyze each exit route to determine how to protect and increase business value and understand the tax implications of ownership transfer through sale, gift, and estate. 
  • Obtain a formal valuation performed by an independent third party to set a fair price for company stock based on a consistent methodology for valuing the stock in the future. Include a reasonable discount for lack of marketability and minority interest, if applicable. This provides a benchmark for buy–sell agreements and executive compensation, equity-based plans, etc.
  • Determine and evaluate the best ways to increase the overall value of the business so that it’s more attractive when you ultimately sell.

Stage 4: Choosing an Exit/Transition Route

There are a variety of ways that you can transition the ownership of your business, and the right choice will be highly dependent on your personal preferences, financial situation, and current structure of your business. Here are some available options:

  • Sell to an outside third party (financial or strategic buyer).
  • Sell to employees using an Employee Stock Ownership Plan (ESOP). In short, an ESOP will allow you to sell to employees, who will gradually become owners of the firm and will have vested interest in making sure the company is successful.
  • Sell the business to one or more key employees (management buyout).
  • Sell to remaining shareholders, if applicable.
  • Transfer the company to a family member(s).
  • Retain ownership but become a passive owner.

Stage 5: Implementation of Chosen Business Exit Route and Post-Transaction Servicing

After completing steps 1-4, you then face the task of implementing everything and navigating the transition. To help yourself while still owner, as well as help the future owner(s), here are key things to consider:

  • Engage shareholders and the company to execute the chosen business exit route (external or internal sale or transfer).
  • Develop a contingency plan for the business (outline key succession management and be able to answer who will run the business in the event of a death or disability of current operational shareholders).
  • Develop a contingency plan for the owner’s family (financial, estate, and charitable planning).
  • Develop an ongoing servicing plan for the business and family (ongoing review to ensure that planning is being followed and to advise in the event of life changes within the family or succession management).

Is Your Business Ready for You to Exit?

If you’d like to put a proactive, actionable plan in place so you can exit your business on your own terms, we at Horizon Planning Group would love to help. You can 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 fiduciary financial planning firm 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.