In most cases, there are a variety of exit options available to a business owner, including a sale to a third party and a transfer to an insider. Often, there are a host of further options, including such alternatives as an employee stock ownership plan and a private equity recapitalization. Based on the owner’s objectives and a realistic assessment of the value of the business, the business owner can identify the option or options that are most likely to best satisfy his or her objectives.
It is now time to pull the plan together. There are many factors and options to consider in developing the plan.
The completed plan should include the following parts:
· A restatement of the business owner’s objectives in developing the exit plan and a statement of his or her plans post-exit.
· An assessment of the value of the business as it currently stands and what steps are expected to be necessary to unlock that value.
· A specific plan to improve the value and salability of the business based on an examination of the business, its value drivers and market conditions, currently and in the foreseeable future.
· A specific plan to preserve the value of the business against risks and uncertainties that exist or may develop between the time the plan is developed and the time the plan is to be executed.
· A specific plan, customized for the situation, to unlock the value of the business by completing a sale or transfer of the business in the future, including a description of the plan, steps that must be taken to execute the plan and a planned timeframe or milestones which must be reached to execute the plan.
· And perhaps, most importantly, a process for updating the plan for changing circumstances.
As the plan is completed, you will have assembled many of the resources and advisors you will need to execute the plan when the time comes. Because you will have familiarized your team of advisors with your objectives and the facts about your business, they will be in a much better position to advise you about steps to take in the future. They will also be ready when you make the decision to proceed with a sale or transfer on your terms and on your timeframe.
A key part of the plan will be to include a process for updating and revising the plan for changing facts and circumstances. Among the changes that will often require modification of the plan are the following:
· Family changes, including marriage, births and death.
· Health issues.
· Positive or negative changes in the business.
· Positive or negative changes in the overall industry.
· Positive or negative changes in the overall economy.
· Changes in the business owner’s attitude toward specific potential buyers or transferees.
· Competitive issues.
· Changes in the business owner’s personal plans post-exit.
· Changes in the business owner’s financial assets other than the business.
· Changes in federal, state and local taxes.
Many of these changes are inevitable. Without updating the plan for changes, the plan’s value to the business owner greatly diminishes in value. One approach that many business owners find useful is to schedule an annual review of the exit plan, either as part of an overall planning process or as a part of a year-end financial review.