This final newsletter in our series of an exit planning case study is intended to complete the 6-step exit planning process that puts into action the theoretical aspects of exit planning.  This final newsletter is intended to complete your thinking towards your exit by illustrating the final steps in our 6-step exit planning process.

Review of Newsletters Part I & Part II

Bill Brown was looking for direction in formulating his exit when exit planning consultant Michael first met him.  Bill began by reviewing his goals and measuring his readiness for an exit.  Michael has helped Bill see that with a Low Financial and Low Mental readiness for an exit, Bill is a ‘stay and grow’ exiting owner and best suited at looking at exit options that are aligned with a longer term exit that suits his personal needs and desires.

In short, Bill is not interested in selling the business today but would very much like to begin the exit planning process so that he is better prepared for this very difficult financial event.  By understanding his different options for an exit, Bill begins to see that he can make better decisions in his business to better align his resources towards his eventual exit.  This means that Bill is running his business more efficiently, leading to the business’s lower dependence on Bill’s personal involvement in running his Brewery.

The 6-step exit planning process had Bill very engaged in understanding the five (5) major exit options and which ones were the best to begin the conversation with Michael to further shape Bill’s thinking.  Bill is now ready for the fifth step in the process – figuring out the value that he will receive from each exit option.

Step #5 – The Range of Values of Bill’s Business

Bill has always known that his business was worth ‘something’ but he did not ever really have a firm grasp of what someone else might actually pay him for it.  Michael explains to Bill that his Brewery has a number of different values – it depends upon who the future owner of the business will be.

The ‘range of values’ is very important because it is going to tell Bill whether or not he will reach the financial goals that he established in the first step, goal setting.

Michael explains that sales of businesses to ‘outsiders’ are measured at ‘market value’.  In short, this is the value that someone else will pay Bill for his business.  If someone in Bill’s industry buys his Brewery, he can get the most money because of a concept called ‘synergies’.  If a financial buyer is to acquire the Brewery, Bill might receive ‘investment / financial value’ for the business.  Michael explains that there are other valuations as well.

Internal Transfers

If Bill decides that he wants to transfer or sell the business to his managers, he will experience a form of ‘financial / investment value’ which pays him over a long period of time from the cash flows of the business.

Also, Bill can sell shares of his company to an Employee Stock Ownership Plan (ESOP) which is another form of an ‘internal’ transfer.  This valuation is measured at Fair Market Value.

Finally, Bill can gift shares of the business to his children [or to others].  Again, this would be measured at Fair Market Value.

Michael explains that each valuation is different as is the timing and amount of payment from each exit option.  Bill is beginning to see that there is much more to a business exit than he originally thought.  In order to truly achieve his goals, Bill will need to commit further to this planning exercise and be careful about how and when he will extract the equity from his business.

What Bill is realizing is that it is not necessarily most important that he receive this highest ‘value’ for his business.  Rather, Bill now sees that the most important financial aspect of an exit plan is how much of the ‘value’ Bill will keep.  This leads us to our sixth and final step – Executing the Exit Plan.

Step #6 – Execution of Bill’s Exit Plan

In addition to the various values for the different exit options that Bill is learning about, it is also most important for Bill to understand not only what he will get for his business but also what he will keep.  This means that Bill needs to incorporate taxes, fees and other areas where his business wealth will be diminished if he wants to plan his business exit and protect his illiquid wealth.

The areas where Bill needs to focus on in order to best protect his illiquid wealth include his:

  • Taxes,
  • Estate taxes
  • Gift taxes and planning for his family’s wealth
  • Deal Structuring for his transaction
  • Legal agreement that he will need to sign for the transition, and
  • The advisors who will assist Bill with his exit and business wealth protection

Michael is Bill’s consultant for his business exit and wants Bill to understand that these execution items require a great deal of care and need to be addressed far enough in advance of a future transaction for Bill to avoid any unnecessary surprises with his exit.

When this final step of analysis is complete, Bill will have a full picture of what a successful exit can look like for him, his family, his employees and all other parties who rely upon Bill’s Brewery for their livelihood.  Bill has done the hard work to understand his goals, his readiness, as well as the options and ‘range of values’ for his exit.  Bill now needs to take the next and most important step forward – putting the plan in motion by engaging in the process of exiting his business.  Even though Bill will not leave for many years, it is important that he remain focused on his end results.

Having understood the 6-step exit planning process and seeing what areas Bill needed to pay attention to, it is the intention of this series of newsletters that you too will now be empowered and encouraged to pursue your own exit plan in order to better your chances of a successful eventual exit from your business and protect your illiquid wealth.

We look forward to assisting you in any way that we can with this challenging task.

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