When Should Business Owners Think About Exit Planning?
As a business owner and the driving force behind your company’s growth, what happens when you’re ready to step away? Exit planning is essential for business owners to help ensure a smooth transition, particularly for family-owned businesses.
However, according to the Exit Planning Institute, only 41% of business owners have a formal plan of what they'll do after leaving their business. Additionally, only 20% to 30% of businesses successfully sell at market [1] underscoring the need for early and informed exit planning. In the following video, Quantum’s CFO David DeWolf, shares more insights into exit planning.
Why is Exit Planning Important for Business Owners?
Exit planning helps ensure the business owner's readiness and a smooth transition for all parties involved when leaving a company. A well-thought-out succession plan addresses key questions such as:
Who will take over the business: family, other internal leaders, or external buyers?
What type of sale should you pursue?
How much do you need from the sale to meet your future financial goals?
What does life after business ownership look like?
Without proper exit planning, business owners may find themselves desperate to sell at any price or forced to delay their exit as they untangle their personal and professional finances, manage family relations, build business value, or wait for a suitable buyer. A lack of planning can also result in financial insecurity, unmet goals, and the failure to realize the continuity of their business or family legacy.
Personal readiness also plays a critical role. Many business owners are reluctant to let go of what they’ve built, making the decision to exit even more challenging or easier to put off. Early planning can help business owners cope with these emotions and make informed, strategic decisions long before they leave their company.
The Right Time to Start Exit Planning for Family Businesses
Ideally, we recommend business owners begin planning at least five to 10 years before their intended departure. This runway gives them time to evaluate their sales options, identify and groom successors, and ensure their business’s value and ultimate sales price align with their personal financial goals.
There may be other indicators that may prompt a business owner to begin exit planning even sooner, including:
Reaching retirement age or a specific milestone: These stages often prompt us to start planning for the future. Learn how to thrive in retirement beyond just the numbers in our recent webinar.
Changes in health or personal circumstances: In these cases, an exit strategy is more important than ever to ensure business continuity and stability.
Shifts in market conditions or business performance: Market turns may prompt a business owner to exit while their business is at peak value.
Increased interest from potential buyers or investors: It might be the right time to capitalize on your selling and negotiating power when there's expressed interest.
Early planning for family-owned businesses also helps business owners determine whether they want to transition the business to the next generation, ensuring family members and internal leaders are on the same page. Some considerations include:
Determining whether to keep the business in the family or consider other succession options.
Preparing the next generation to take over, ensuring they are ready to step into leadership roles and their vision is aligned with the future of the business.
Addressing potential family conflicts or other complex dynamics to preserve business and family relationships.
Read more about what you can be doing five years from retirement.
Exit Planning for Family Businesses: How Quantum Helps
Proactive exit planning benefits your business's future and ensures your family’s financial security and legacy are well-protected. Engaging a financial advisor is critical to achieving financial stability and a smooth transition into your next chapter. At Quantum, we specialize in helping you navigate the complexities of succession planning through our comprehensive wealth management model that incorporates financial planning, tax planning as well as risk management.
As a Certified Exit Planning Advisor, David DeWolf and the Quantum team are uniquely equipped to guide business owners throughout the stages of their ownership journeys. It’s never too early to start considering how you can safeguard your future. Contact us to learn more about how we help business owners develop strategic and meaningful exit plans. If you’d like more insights delivered to your inbox, please sign up for our newsletter.
Source
[1] Exit Planning Institute. “2023 National State of Owner Readiness Report.” 2023. https://exit-planning-institute.org/hubfs/Member%20Center%20Resources/2023%20National%20State%20of%20Owner%20Readiness%20Report.pdf
DISCLOSURE: Quantum Financial Advisors, LLC is an SEC registered investment adviser. SEC registration does not constitute an endorsement of Quantum Financial Advisors, LLC by the SEC nor does it indicate that Quantum Financial Advisors, LLC has attained a particular level of skill or ability. This material prepared by Quantum Financial Advisors, LLC is for informational purposes only and is accurate as of the date it was prepared. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Advisory services are only offered to clients or prospective clients where Quantum Financial Advisors, LLC and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Quantum Financial Advisors, LLC unless a client service agreement is in place. This material is not intended to serve as personalized tax, legal, and/or investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Quantum Financial Advisors, LLC is not an accounting or legal firm. Please consult with your tax and/or legal professional regarding your specific tax and/or legal situation when determining if any of the mentioned strategies are right for you.
Please Note: Quantum does not make any representations or warranties as to the accuracy, timeliness, suitability, and completeness, or relevance of any information prepared by an unaffiliated third party, whether linked to Quantum’s website or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.
For more information about Quantum and this article, please read these important disclosures.
