On August 24th, Karl Klein, Certified Exit Planning Advisor and Regional Director of the Washburn KSBDC was joined by Andrew Ellis (of Arthur-Green, LLP), Seth Gordon (of Sink, Gordon & Associates, LLP) and Dustin Taylor (of Kaninsurance) for a panel discussion on “Who Needs an Exit Strategy?” at the Manhattan Area Chamber of Commerce. Thank you to all four of the panelists for sharing your valuable expertise!
Karl Klein started the discussion by answering the question at hand. Every business owner needs an exit strategy. Every business owner, by plan or by surprise, at some point separates from his or her business. Good transition planning, done sufficiently far in advance, can pave the path for favorable outcomes for the parties affected by the loss of an owner, change in ownership or closing of the business. These parties potentially include not just the exiting business owner, but also any business partners, employees, heirs, stakeholders and/or the new owner.
Though the issue of transition planning is topical given the vast number of small businesses owned by baby boomers approaching retirement, it is in fact an important subject for business owners of any age. Key components are anticipating personal goals, assessing how those relate to future financial needs, building the value of the business to meet those needs, figuring out how to capture that value, and having knowledgeable advisors in place. These advisors might include an exit planning specialist, a financial planner, an attorney, a certified public accountant, a banker and an insurance agent.
Here are some of the important tips offered by the panelists:
• It is never too early to think about an exit strategy. (That is, how will you leave your business?)
• Ideally, allow at least several years to create and execute a transition plan. (In some cases, it may take even longer.)
• It is important to know the value of your business and to be prepared for the fact that it may not be worth as much as you expect.
• Be aware of how maximizing legitimate tax deductions might negatively affect the perceived value of your business.
• If you plan to sell your business, pay attention to value drivers and try to cultivate a buyer.
• If your business has co-owners, make sure that you have a buy-sell agreement (or transition agreement) in place as early as possible.
• Make sure that you have a signed confidentiality agreement before disclosing your financials to a potential buyer.
• Pay attention to who is the named insured on any insurance policy that attaches to the business.
• Carry disability and life insurance on owners and key persons in your business.
• Confer with your advisors to minimize tax consequences and legal risks that can accompany changes of ownership or the death of an owner.
• Have a plan – and not just a financial plan – for life after business so that you can enjoy it!
For many small business owners, the bulk of their net worth is tied up in their businesses; and so the ability to maximize and capture that value is critical to their long term financial health. At the WU KSBDC, one of the advising areas in which we work with clients is transition planning (also called “exit planning” or “succession planning”). This typically involves a business valuation, an assessment of readiness to exit or transition, an evaluation of the potential for value acceleration, a strategy for capturing value, a plan for a smooth transition and on-going advising as needed.
Laurie Pieper, Ph.D.