When to Plan Your Exit Strategy

As with any other good business decision, succession/retirement should be planned well in advance. Given the time required to properly structure and prepare for the sale of a business, the planning process should start as a minimum, 2 to 5 years before the actual anticipated target date.  There are many reasons for this.  First of all, many of the steps that need to be taken will require time to identify and implement.  Second, some steps must be done several years beforehand, such as implementing a corporate structure.  For example, you can’t do an estate freeze during a sale because there will be no time for the increase in value to accrue to other family members.  Tax planning requires time to mature and growth in sales and profits also takes time.

Your company may have performed well in the past but the potential acquirer is interested in the future. Past performance is only an indicator that the business can be successful.  Therefore, the first step for any Succession plan is to select a qualified Succession Planning or Exit Readiness specialist.  Very few professionals are trained to assist in the business succession planning process.  It is a relatively new area of expertise.

Exit planning involves the preparation of an initial Exit Readiness Report which is designed to pinpoint the exact areas of the business that are performing well and the areas the require attention.   This report leads to the creation of an Action Plan which becomes the strategic plan for positioning the company into an exit ready position.  The Action Plan prioritizes the sequence of areas to be improved, timelines are established and a monitoring system is put into place to monitor the entire process.  The other benefit of engaging the services of an Exit Planning specialist is this specialist assembles to Succession Planning team to work with the business owner.  The team will include a lawyer, a tax advisor, a financial planner, an insurance specialist, a marketing specialist and later, a business broker.  Some of these areas of expertise may be provided by the same specialist or by the Exit Planning specialist himself.