The Exit Planning Problem

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Exit Planning – Why and What
February 16, 2015

The Exit Planning Problem

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Over the next 15 years, the Australian economy will experience the greatest shift in wealth that has ever occurred due to the number of businesses that will change hands as baby boomers retire. The owners of most of these businesses are now in their mid-50’s or older and have to be think about retirement. The result will be a glut of available businesses and downward price pressure for most privately owned companies.

The baby boomer generation has been one of the most entrepreneurial generations in the history of our country. Survey results showed that approximately 30% of owners plan to sell their business to a third-party buyer.  Another 30% plans to sell or succeed to a family member, while another 18% plan to sell in some manner to current employees.   The remainder plan to close and liquidate the business.

For those business owners who intend to sell to a third-party, it will become increasingly important to position their business to sell successfully in an increasingly competitive market.  With one out of every two business owners looking to sell over the next 15 years, there will be a glut of businesses on the market.  Now, more than ever, it will be important that a business owner focus on doing everything he or she can to increase the attractiveness, value, and salability of the businesses.

Tragically, the RMIT study have shown that approximately 80% of private business owners have no strategic exit plans in place.  An additional 25% have done little or no estate planning.  This is a recipe for disaster.

An exit plan is a comprehensive, integrated plan that asks and answers all of the personal, business, legal, financial, tax and estate issues that are involved in exiting from a privately owned business.  This plan shows business owners how to begin positioning themselves and their businesses so that the owners accomplish all of their personal, financial and business goals when they exit.

Given the number of companies coming to market, business owners will need to focus on improving profitability, building a management team, and growing revenue in order to make their companies more attractive and maximize the proceeds they receive at the time of exit.

Exit planning delivers tangible results for savvy business owners.  It is not uncommon for companies that have invested the time and effort to prepare themselves for sale to sell for a significant premium over companies that come to market unprepared.  In addition, with good planning business owners are often able to reduce or in some cases eliminate the capital gains taxes due at the time of sale.  This dramatically increases the after-tax net proceeds that owners keep.  But the most often overlooked component of exit planning, and perhaps the most important, is the peace of mind that comes when a business owner knows that he or she is being proactive and taking charge of the future, rather than waiting passively to let the future take care of itself — after all, deciding how and when to exit a privately owned business is perhaps the single most important financial and personal decision in a business owner’s lifetime.

To get started on the exit planning process as well as the exit process, get informed. Seek information from the best independent and objective sources possible. One good place to start is to talk with trusted advisors like your solicitor, accountant, financial advisor, or insurance professional or an investment banker who focuses on privately held businesses.

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