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What’s your exit plan?

January 27, 2025

Questions every company owner should ask as they build a succession plan 

I always think it’s good to “end on a high note,” as the saying goes, and the advice couldn’t be truer when it comes to exiting your business. In fact, proper succession planning is not only crucial to ensuring the long-term viability of your business but also your own retirement (or any other post-sale plans). 

The demographic shift affecting the broader economy is also reflected in overall business ownership stats: Up to 60% of private businesses in the U.S. are owned by Baby Boomers, a looming challenge for succession planning, as Renee Wiatt, research specialist at Purdue University, told KCUR

“There's a silver tsunami coming. There’s basically going to be this mass exodus of that Baby Boomer age who are going to all be retiring in the next five to 10 years.” 

And while the Exit Planning Institute reports that 73% of owners want to get out within the next 10 years, the group also recently published a survey that showed nearly 80% of owners had no written transition plan, and 50% had no plan whatsoever.  

Business owners are at least starting to grasp the gravity: The National Association of Corporate Directors reported that 75% of owners said if they were to walk away tomorrow, they don’t feel certain their businesses would continue to move forward. 

As an owner, that transition is likely the biggest financial event of your life, so you have to get it right. The earlier, the better when it comes to creating a succession plan that meets the goals for both you and your organization. Ideally, that process starts five to 10 years before you’re ready to walk away. 

The first step is to consult your financial advisor, who needs to be part of the early planning and who can help you with key components of the plan: identifying value drivers before your exit to increase valuation, the best sale structure (inside deal, third-party offer, ESOP, etc.) and the best scenarios for your own financial future.  

But even before that, I always advise my clients to begin by asking yourself important questions about succession planning. Your answers will help define your goals and set a foundation for a successful exit that not only generates wealth but ensures a fruitful future for the business you’ve worked so hard to build. 

Why am I selling the business? 

Take a closer look at your primary motivations: Are you hoping to retire? Maybe pursue other interests? Maybe you’re hoping to address particular challenges you’ve faced in the business, or maybe it’s to liquidate assets for personal reasons. The answers may determine the best sale structure for you. 

Do I want to create a legacy or maximize profits? 

Is it important to preserve the culture and history of what you’ve created? Legacy succession planning helps to do all of that, as well as preserve valuable relationships with your clients, employees and vendors.  

On the other hand, your goal may be to make as much as you can from the sale. This route can help your company leaders plan for the years ahead (including mapping out career paths for top employees) and, of course, maximizing profits. 

I remind my clients that an external sale could generate money and new opportunities for growth, and could be a great option if you’re looking forward to retirement or just exploring something new. However, I also tell them that it’s important that any new buyer you find shares the same vision as you for the future of the company. 

What is my business worth? 

I see it a lot: Many owners overvalue the true worth of their business, which is why early succession planning is so valuable. Your advisor can help with a professional valuation, identify key assets and liabilities that may affect the sale price, and evaluate your financial performance, market position and growth potential.  

At MarksNelson, we use a sophisticated cash-flow model that gives us an accurate valuation (and shows potential buyers how we can use cash flow to pay for the business), and we consult with tax advisors and legal pros to ensure the valuation is in line with all tax laws and regulations. 

How can I make the business more valuable? 

Studies show 86% of owners already fully comprehend they need to grow the value of their business, and that’s true among many of my clients. We can help owners with a variety of tactics to achieve that, including incentive plans to encourage positive employee behavior, improved marketing strategies, changes to operations, improvements to your online presence and more — all to help raise the valuation. 

What do I need from the sale to ensure a successful retirement? 

Do you know if the potential sale proceeds will help you meet your retirement goals? Our wealth advisors can ensure the sale structure is created in the most beneficial way and help you realize all applicable tax advantages of the transition. 

What are the risks of putting off succession planning? 

Even if your exit seems far into the future, the process can’t start soon enough. Wait too long and you risk a number of negative outcomes:  

  • You may lose critical knowledge when top employees depart early because they’re unhappy with the transition. 

  • You may be forced to choose less-than-ideal successors for key positions. 

  • You may experience a loss of productivity and continuity when onboarding new leadership hires. 

  • You may see disruptions to significant business relationships with key customers, clients and vendors. 

The best advice I can give? Don’t risk it. Start planning now, and you’ll realize how freeing the process can be! The long runway allows us to leverage all tax-advantaged strategies for major wealth transfer events and also have the flexibility to pivot if any of your needs change in the years to come. 

You’ll also experience the peace of mind that comes with having a plan in place and a road map to reach your goals. You’ll walk away from the business not only on a high note but financially secure for the future. 

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MarksNelson can help you navigate the succession planning process and will create a plan based on your specific goals and needs. To learn more about how we can help, reach out to Terry Staley today at tstaley@mnadvisors.com, or talk to MN Wealth expert Matt Ahrens at mahrens@mnwealthadvisors.com.  

About THE AUTHOR

Terry Staley is a Certified Exit Planner who works with business owners in the successful exit from their businesses. A successful exit plan includes meeting owner’s objectives including time until retirement, dollars needed in retirement and transferring ownership to a key employee group, family members,... >>> READ MORE

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