Creating an exit plan should be a part of your business practice, regardless of what stage of growth your company is in or what type of economic environment exists. Having an exit plan simply means that you have analyzed the possibilities for the ultimate sale or transfer of your business's ownership and control. This plan includes an understanding of the tax and business implications of each option and takes into account the wants and needs of your company's future owner. Understanding your eventual exit, even if it is years off, will allow you to align day to day operations and decision making with these goals.

Let's start with a few illustrations on how an exit plan affects day to day operations. A business owner who plans to sell to an outside buyer will want to record the highest level of profits, and consistency in those profits, the years prior to sale. Alternatively, an owner who wants to transfer to a management team, or perhaps install an Employee Stock Ownership Plan (ESOP), may decide to include key managers in both strategic and tactical planning today so that they are empowered with more authority and decision making in the business. These types of forward thinking decisions may be the difference between the success and failure of your exit and whether or not you ultimately protect the wealth in your business. These examples show the importance of aligning your company's resources with your exit plan. So how do you determine which is the optimal path for your company? We offer three steps that pull this planning together.

First Step: Assessing Ownership's Readiness

The first step in creating an exit plan is to determine your overall goals as well as how prepared you are for an exit. After figuring out how you would like to live 'beyond' the business, you will need to accurately assess how much money is required to maintain that lifestyle. This process includes an analysis of your dependency on the business not only for income, but for benefits such as car payments, health insurance, and other lifestyle expenses. Determining what you need versus what you currently have saved outside of the business will help you choose an exit option that can bridge that financial gap.

In addition, you will need to assess when and how you want to exit. Exiting a business that has been built by years of hard work and dedication can be a difficult emotional hurdle, often times impacting employees, family members, and, perhaps, your community. How involved are you in the day to day operations of the business? What will you do with your time when you are no longer running the business? Do you view the business as a 'job' or as an 'investment'? These answers will become vital when you start looking at the company's exit options, trying to find the one that best meets your goals.

Second Step: Know Your Exit Options

"Exiting a business" is often associated with selling that business. There are exit options other than selling. In fact, it is helpful to know that only 20% of companies that try to sell to an outside buyer meet with success. The less obvious exit strategies include transfers to family members, to management teams, and/or to employee stock ownership plans (ESOPs). Today's economic environment is having many owners examining these 'internal' transfer options as an alternative to an outright sale.

Selling the business -- Most owners understand that they can, generally speaking, get the highest value from their exit by selling to someone in their business (or a related business). The downside, for most owners, is walking away from a company that took years of hard work and dedication to build. This option is best suited for owners who are truly ready to leave and are not overly concerned about giving up control of the business.

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