I am now 66 years old. It seems like a strange statement to write here. Where did that time go? I have a grown son and my spouse and I are now empty nesters. It is just us now, but we do get to enjoy some delightful visits from my son when he can get away from his own business to join us. Does that sound familiar to you?

We will all be addressing a similar outcome as we age into our later years. This will also affect our busines lives. All business owners will exit their businesses, either by choice or as circumstances dictate (e.g., death, incapacity). Ideally, we want to exit on our terms:

• Leaving our businesses in the hands of successors that we have chosen
• For the money we need and want
• On a date we pick

In the public presentations that I get to do at trade shows and association meetings, I get to see an aging population where half of the attendees either have white hair or no hair (and I’m in that latter half)! We are an aging industry population, and I am guessing that you see the same thing in your own industry meetings. Is there a viable transition plan that we can implement moving forward?

In construction, we create building plans that map-out a vision that we construct for our clientele. We amend that plan as needed during construction because things do change during the construction process. We adapt to those changes and we keep moving. It’s part of the business model. Question – can we adapt a similar approach and do the same thing with our remodeling business?

There are 3 Universal Goals in any Successful Business Transition:

1. Financial: after you leave the business, how much money do you want annually for the rest of your life and your spouse’s life?
2. Departure Date: when do you want to leave your business? And what does “leave” mean?
3. Successor: whom do you want to be the new owner of your company?

Universal Goal 1: Getting what you want.

While we view financial security as a requirement for a successful exit, a second, related financial goal is the amount of annual income you want which will allow you to enjoy the post-exit lifestyle you envision. This second financial goal may be discretionary, but for many owners, it is important enough that they will postpone their exits until they can achieve it. As is true of all decisions in planning for the future of your ownership, the choice is yours.

In previous posts, I have already recommended that you work with a financial planner to determine what your financial goal is. I will continue to argue for the benefits of working with best-in-class advisors from several disciplines. But to quantify what it will take to live your dream, I repeat: rely on an experienced financial planner to establish your financial security wants and your financial security needs. As your planning moves forward, they can also help you bridge any gaps by providing investment advice.

Universal Goal 2: Leaving when you want

Establishing a specific departure date gives you and your advisors a time frame to plan and take the action necessary to prepare your business for your exit. This does not mean you must exit on the first day you choose. Just like amending a construction plan, you may decide to stay in the business longer than anticipated by choice. The choice is yours, but only if your business is ready for you to exit it.

Universal Goal 3: Transferring ownership to whomever you want

The third and last universal goal that I ask owners to establish at the outset of the exit and transition planning process relates to a successor. Whom do you want to succeed you: a child, a partner, or a third party? Which type of successor will best help you reach your goals?

At the outset of this planning process, you may not have a successor preference. You can postpone that decision until after you quantify your asset gap and begin to bridge it.

Modifying Your Goals:

When owners work with advisors to plan their exits, they think more deeply and clearly about what they ultimately want to accomplish for themselves, their families, and their businesses. It is not unusual for owners, as they gain clarity, to modify their goals. Making changes early in the process is more time and cost-efficient than changing course once a plan is finalized and implementation is underway.

Values-Based Goals:

The three universal exit goals are common to all owners. These may be the only goals you seek in exiting your business, but many owners have additional goals based on sentiment, attitudes, or feelings.

Values-based goals tend to be non-monetary. They also tend to be less tangible and more heartfelt. But they are no less important to owners than the goals we can measure objectively.

The following list of common values-based goals is by no means exclusive or all encompassing. You may wish to add your own:

• Family Harmony
• Owner Legacy
• Acknowledging Employees
• Taking the Business to the Next Level
• Minimizing Taxes
• Maintaining Culture
• Community Involvement
• Quality Retirement
• Charitable Impulses

To uncover your values-based goals, ask yourself the following:

• What is my vision for my company without me?
• What is my vision for myself without my company?
• Are my values-based goals important to either vision?

A great question you may wish to ponder is, “what are the likely consequences to others of transferring my ownership as I intend?” Discussing this topic with your spouse, children, advisors, or perhaps an owner who has already exited can provide insights into what will happen to your business, and to you after you leave. As your business has been your focus for so many years, where will you turn that focus after departing your business? What lies ahead?

Conclusion:

Setting goals is the most important step you can take in the entire exit planning process. I believe it is the most important action you will take in the rest of your business-owning career.

Once you set your goals and quantify your existing resources, you complete the first phase of the exit planning process. At that point, you will know how close you are to attaining your goals, how far you must go, and how long it might be before you cross the finish line.

Takeaways:

• You must set concrete goals. Unless you do, you will float aimlessly along instead of pulling with all your strength and cunning toward your desired destination
• Goals drive action. Coordinated, focused action requires specific goals
• Financial independence is the acid test of all successful exit plans. Unless your plan delivers financial security, it’s not a successful exit
• Base your three universal goals on facts, not assumptions
• Business exits take time. To determine how long it will take you to exit, you must start with a clear understanding of where you want to end up. The sooner you start to plan your exit, the more time and options you have to harmonize goals, avoid obstacles, minimize risk, maintain control, and increase business value

You do not need to reinvent the wheel. You may not know how to create a successful exit plan based on what you want to accomplish, but I do. If you would like to do a free exit assessment to get a better picture of your present position, contact me at david@remodelforce.com. A simple 30-minute assessment will tell you a lot!

The post Creating the Plan to Eventually Depart Your Business appeared first on Remodel Force™.

• Either they would like to be someplace else—doing something else—
• Or they simply no longer get the same kick out of doing what they are doing

The second stream is the general awareness of the following:

• They are close to financial independence
• They are making significant strides toward reaching financial independence
• They can achieve financial independence today by selling their businesses

While each exit plan is as unique as the owner who creates it, a carefully crafted exit plan has several signature characteristics:

• They aim to increase business value
• They are put into writing so that all involved can measure their progress toward the owner’s goals
• They incorporate accountability by holding the owner and each participant to deadlines for completing each task

The Exit Path Road Map:

Set Exit Objectives/Goals:

Many contractors do not set exit objectives precisely because it is too emotionally wrenching to contemplate separating themselves from a business they have created, nurtured, lived with, suffered with, brought to maturity, and in which they have totally immersed themselves. Your exit plan should be based on your goals. It is difficult, if not impossible, for any planning professional to engage you in the exit planning process until you are emotionally prepared to begin planning to leave your business.

There are three straightforward exit objectives that once established, allow owners to cut through a lot of muddled thinking that otherwise bars them from moving forward.

These 3  exit objectives are as follows:

• Knowing how much longer they want to work in the business before retiring or moving on
• Determining the annual after-tax income they want during retirement (in today’s dollars)
• To whom they want to transfer the business:
  • Family?
  • Co-owner(s)?
  • Key employees?
  • Outside third party?
  • Employee stock ownership plan (ESOP)?

No owner can effectively begin planning (or acting in an efficient and coordinated manner) to leave his or her business without establishing each of these objectives. Many owners will also set other objectives, such as the following:

• Maintaining family harmony
• Providing for one or more employees
• Transferring wealth to family members
• Getting maximum value for the business
• Living a life of significance
• Giving to charity

Remember, your goals and objectives direct all subsequent planning efforts and actions. You are the person primarily responsible for this step, but you do not need to work alone. Who can help? Owners do not need to reinvent the exit planning wheel themselves. I have experience in creating and implementing exit plans for owners in the construction industry.

Quantify Available Resources:

A universal ownership objective is to secure the income stream that you (the owner) and your family will need to support a future lifestyle. The following three elements constitute your financial resources:

• Business value
• Projected business cash-flow
• Non-business sources of income

A Word About Business Value:

Knowing the value of the business is critical to the planning necessary to successfully exit your business because for most owners, their businesses are their most valuable asset. Accomplishing financial goals depends on converting that asset to cash. Based on owners’ knowledge of the current value of their businesses, owners, with the help of key advisors, can determine the following:

• Whether an owner’s financial objectives can be met at present through a conversion of business value to cash
• How much the business’ value must grow in-order to reach the owner’s retirement objectives (this is more common than the preceding point)
• Whether, and how quickly progress can be made to those financial goals

Focus on Business Value:

There are three parts to focusing on business value:

• Protecting existing value
• Increasing the future value of the business
• Minimize current tax liability and general liability when you transfer ownership

Increase Business Value:

An inevitable byproduct of a consistently well-run business is consistently increasing value. There are numerous actions an owner can take to maximize value. These include the following:

• Maintaining and consistently increasing cash flow
• Documenting the sustainability of earnings
• Motivating and keeping key employees
• Creating and using efficient systems

Increasing business value goes to the heart of a successful business and to the essence of your role within the business: to enhance value.

Minimize Risk:

A future buyer may not even consider purchasing your company if there is a risk that its value will decrease. Have you taken steps to make sure your key employees stay with a new owner after you exit?

Develop a Contingency Plan for the Business:

One of the benefits of developing an overall exit strategy is that you quickly appreciate how contingency planning is an integral part of it. Taking effective measures so that your business survives if you do not is a natural part of the exit planning process. In an ideal situation, business-continuity needs upon the death or incapacitation of an owner can be met by a business-continuity agreement with a co-owner. However, most businesses are solely owned. If sole owners do nothing else, they have a duty to their families and businesses to create written plans that answer the following questions:

• In my absence, who can be given the responsibility to continue and supervise daily business operations?
• Financial decisions?
• Internal administration?
• How will these people be compensated for their time and, most importantly, their commitment to continue working until the company is transferred or liquidated?
• What should happen to the business upon my death or permanent incapacitation?

When owners make the decision to begin transferring their businesses, the last thing they are likely to consider is the need for adequate planning to protect the business if they should suddenly die or become incapacitated. Yet, this is precisely the point at which the business is most vulnerable: It has peaked in value, but the event creating liquidity (i.e., the sale of the business) is likely years away. The remedy is usually straightforward: adequate legal documentation in the form of a buy-sell agreement or a stay-bonus program that includes adequate funding for important employees.

Develop a Contingency Plan for the Owner’s Family:

With this last step, your exit planning process comes full circle. Review your financial objectives established in the first step:

• If you do not survive until your business exit, which financial resources will your family need and where will they come from?
• Which actions can you take to minimize or avoid estate taxes?

As a business owner your estate plan is another part of your overall exit plan. Unlike some of your lifetime objectives (e.g., financial security), estate planning objectives and business-continuity objectives are relatively easy to meet upon your death or incapacitation. To acquire the liquidity sufficient to meet your financial objectives, consider the purchase of life insurance and disability insurance. You may be surprised by how easy it is to meet after death objectives using insurance.

Once owners complete the first two steps of the process (setting objectives and quantifying available resources), they can jump to this final step (preparation of appropriate estate planning documents and funding financial needs using insurance) so they can minimize the financial impact their death would have on their families and their companies’ ability to survive.

Conclusion:

All the techniques that produce operational business success (learning from mistakes; developing business strategies based on experience; and conducting business efficiently and effectively) do not guarantee a successful business exit.

Sadly, the valuable experience owners develop over the course of their business lives does not equip them to leave their businesses successfully. Experience, learning, and trial and error all require time, a luxury most business owners do not enjoy as they approach the end of their ownership lives.

All this planning sounds complex and time consuming, but it does not have to be. I can help you create a comprehensive exit plan that gets you the money you need, achieves all of your other objectives in a time and cost-efficient manner, and meets the following criteria:

• Based on your objectives
• Includes each of the steps summarized here
• Holds you (the owner) and all advisors accountable
• Provides a means of measuring your progress toward a successful exit
• Imposes deadlines to ensure that you and your advisors act in a timely manner

Armed with a written exit plan, a team of experienced advisors, and with (ideally) several years before you exit, you can optimize your ability to leave your business in style. If you would like to do a free exit planning assessment to better plan your eventual exit, let me know.  You can contact me at david@remodelforce.com.

The post Leaving Your Business is Inevitable! appeared first on Remodel Force™.