Business Exit Planning Pitfalls to Avoid
The best exit plans are well-prepared strategies that help maximize a company’s value at the time of the exit, minimize the amount of taxes paid, and help owners accomplish their personal and financial goals. Exit plans also help an owner control how and when they leave, minimize employee and family uncertainty, and ensure the survival your business after exiting. In most cases an owner without an exit plan will leave money on the table, but devising an effective exit plans requires foresight, commitment, and a lot of due diligence.
As you prepare to put an exit plan into place, be mindful of these common pitfalls:
1. Not considering all your options. You’d be surprised how many business owners assume an outright sale of the company to a third party is their best financial option. Every company is unique and every owner has a specific set of goals and requirements, so your exit option should be the one that best fits those overall needs, whether it be a management buy-out, an intra-family sale, or an employee stock ownership plan (ESOP).
2. Failing to consider tax ramifications early enough. You need to assess the tax impact of your exit plan early in the process to determine the actual net proceeds based on various exit scenarios. Each scenario will have different tax implications that will in turn determine the strategies used to minimize your tax burden—such as an annuity or charitable trust—and enable you to implement them sooner rather than later. The exit planning process should also identify how much money you will need after taxes to replace your income and how much you need to get from the sale to retire or start your next venture, and fund any shortfalls.
3. Avoiding possible confrontation. Business owners often shy away from the possible conflict that could arise from establishing an exit plan. This is especially true in family businesses, where the owner avoids discussing uncomfortable issues about succession or selling to a third party that might lead to hurt feelings, resentful employees, and family feuds. However, dealing with succession issues now could prevent later conflicts that might hurt or even jeopardize the company’s future.
4. Confusing exit planning with estate planning. As a rule of thumb consider exit planning dealing with the continuity of the business, while estate planning is generally concerned with estate taxation and financial bequests of the owner. Some people approach an exit plan as being part of their estate plan. While they are rightfully two distinct plans, they are generally integrated to varying degrees because each plan can directly affect the other.
5. Stress. Devising an exit plan is one of the most important responsibilities an owner should carry out to protect his company, his family, his financial future, and his legacy. But it can be very stressful, especially if you try to do it all on your own. It is essential to work with advisors who can guide you through the process and help you devise the right exit plan for your individual needs and goals.
Let us work with you to design a comprehensive exit plan that will help maximize your company’s value, minimize your tax burden, and secure your financial future.
As you prepare to put an exit plan into place, be mindful of these common pitfalls:
1. Not considering all your options. You’d be surprised how many business owners assume an outright sale of the company to a third party is their best financial option. Every company is unique and every owner has a specific set of goals and requirements, so your exit option should be the one that best fits those overall needs, whether it be a management buy-out, an intra-family sale, or an employee stock ownership plan (ESOP).
2. Failing to consider tax ramifications early enough. You need to assess the tax impact of your exit plan early in the process to determine the actual net proceeds based on various exit scenarios. Each scenario will have different tax implications that will in turn determine the strategies used to minimize your tax burden—such as an annuity or charitable trust—and enable you to implement them sooner rather than later. The exit planning process should also identify how much money you will need after taxes to replace your income and how much you need to get from the sale to retire or start your next venture, and fund any shortfalls.
3. Avoiding possible confrontation. Business owners often shy away from the possible conflict that could arise from establishing an exit plan. This is especially true in family businesses, where the owner avoids discussing uncomfortable issues about succession or selling to a third party that might lead to hurt feelings, resentful employees, and family feuds. However, dealing with succession issues now could prevent later conflicts that might hurt or even jeopardize the company’s future.
4. Confusing exit planning with estate planning. As a rule of thumb consider exit planning dealing with the continuity of the business, while estate planning is generally concerned with estate taxation and financial bequests of the owner. Some people approach an exit plan as being part of their estate plan. While they are rightfully two distinct plans, they are generally integrated to varying degrees because each plan can directly affect the other.
5. Stress. Devising an exit plan is one of the most important responsibilities an owner should carry out to protect his company, his family, his financial future, and his legacy. But it can be very stressful, especially if you try to do it all on your own. It is essential to work with advisors who can guide you through the process and help you devise the right exit plan for your individual needs and goals.
Let us work with you to design a comprehensive exit plan that will help maximize your company’s value, minimize your tax burden, and secure your financial future.
Are you maximizing your company's growth and valuation potential?
Get your free score + 5 custom scorecards to see a point by point analysis of your company.
delivers Pay Days
