Broker Check

Richard Fields - Integrated Advisory Services - Winston-Salem, NC

110 Oakwood Drive, Suite 550, Winston-Salem, NC 27103


Beginning Steps to a Successful Exit Plan

Beginning Steps to a Successful Exit Plan

| June 08, 2017
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As business owners think about how they can transfer their businesses in style, remember that even smart, experienced, successful people can misinterpret the facts. Facts, rather than assumptions or guesses, allow business owners to make correct decisions about what they will need to live the post-exit lives they want. Thus, owners would do well to heed the advice of Sgt. Joe Friday: “All we want are the facts.”

In the age of “alternative facts,” we ask two questions: “How do owners know that facts are facts when they see them?” and “Which facts do owners need to consider?” It’s important that business owners make a checklist of items about which they must secure accurate information. Then, they can use that checklist to gather the information that they must consider as they begin to plan for the most important financial event of their lives: exiting their businesses.

There are six critical questions that owners must answer in order to find the facts that will help them achieve success in their business exits. By answering these questions accurately, owners will become much more likely to achieve the success they deserve through their decisions and actions. 

“All We Want Are the Facts” Exit Planning Questionnaire

  1. What amount of annual, pre-tax post-exit income will you need after you exit?
  2. What is the joint life expectancy of you and your spouse?
  3. What is an appropriate withdrawal rate from your post-exit investment portfolio?
  4. What is your business worth?
  5. At what rate do you expect your cash flow and business value to grow?
  6. What will the net proceeds be from the sale of your business?

Let’s look at the common assumptions owners make when answering the first question, and the factual information required to answer it appropriately.

Question 1:  What amount of annual, pre-tax post-exit income will you need after you exit?

Common Assumptions: Many owners assume that they can live on considerably less than what they are spending today. Likewise, many owners think that they have a “pretty good idea” of what they and their spouses spend each year.

All We Want Are the Facts: To avoid these potentially devastating assumptions, owners must prepare a budget that includes their compensation, perks, and company distributions (net the money they save or invest). Most owners do not reduce their spending after they leave their businesses, at least not until later in their retirements. Many owners underestimate the amount of money they spend because they don’t include all of their business perks as part of their personal-spending calculations.

Accurate Information Source: We recommend that business owners hire a fee-based financial planner to determine what they need after they exit.  Assumption-based Exit Planning will cost far more than even the most expensive financial planner in the long term. Business owners cannot afford to base their Exit Planning on optimistic assumptions.

In summary, fact-based Exit Planning can create the post-exit life business owners desire and deserve.

In the next post, we will examine the assumptions around joint life expectancy and how to ensure business owners have fact-based answers to continue to form the foundation of the Exit Plan.

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