You must find a way to unlock that amount of wealth — and without being clobbered by taxes, which can exceed 60 percent.

As I enter the 10th year of my second career as an exit planning consultant, I have a much deeper understanding and appreciation for this complex process. Even though our co-owners and I bought and sold a 200-employee company, my real technical learning came through my exit planning training and guiding owners through the exit process. This includes the various dynamics of business ownership as well as the tools required to successfully transition a business in a seamless and tax-efficient manner.

These newly discovered tools and concepts were never provided by our advisers to my team when we exited our business.  

What you don’t know is we (the company, the buyers and the sellers) overspent millions in unnecessary taxes with cookie-cutter advice. Millions that could have been saved if I knew then, what I know now:

You Need a Plan

As the leader of the organization, everything stops with the owner and CEO. Until he or she is committed to implementing change, the owner/s will stay stuck in the business. Owners are so preoccupied with their day-to-day concerns that they fail to concentrate on their largest financial asset and how they are going to get hard-earned wealth out of the business.  

Procrastination often is the extension of fear of the unknown. Owners must educate themselves on the exit process, so they can harvest their wealth. They do not want to fall victim to the statistical 70 percent failure rate of owners who never sell or transfer their businesses and settle for a 10 percent liquidation value for their company.  

The exit process can be arduous and intimidating due to the integration of the various disciplines, as well as the coordination of advisors (accountant, valuator, attorney, tax adviser, estate attorney, financial planner and insurance professional) and their mixed messages and uncoordinated advice from different towers.

The purpose of an exit plan is to formulate a plan, much like an architect constructs a specification and blueprint, incorporating all the disciplines necessary to provide the owner with clarity and a coordinated understanding of the task at hand.

The final plan coordinates all the moving parts and moves the owner out of the business in a harmonious and tax-efficient manner that meets his business, personal and financial goals.  

Good planning should allow the owner to utilize the many tools that can provide options that closely support their goals by increasing cash flow, asset protection while reducing the tax burden.

Can I Maintain My Lifestyle?

One of the biggest obstacles in getting owners to begin the exit planning process is the fear of outliving their money. Exit planning begins with establishing the “number.” It represents the amount of liquid assets needed from the company to generate enough income that will replace the owner’s lost income from leaving the business.

The first step is to complete a valuation of the company to determine its worth. The second step is to inventory the owner’s personal and financial wealth to determine assets outside of the business. The shortage is then measured against the value of the business and the net proceeds the owner can expect to realize from his chosen exit.

If there’s a shortage, then the value of the business needs to be increased and tax-efficient saving plans must be implemented while in control of the business or the business owner must adjust their post-exit lifestyle.

The fundamental goal of an exit plan is to assist the business owner in understanding the number needed and filling the gap over a period of time, so the owner can begin retirement with confidence.  

$25 Million isn’t Enough!

Most private business owners are not good savers as they reinvest their profits back into the business to defer taxes or invest in growth. Having a sound tax-reduction strategy is a critical part of being able to afford the exit.

The exit taxes can range from zero percent to amounts more than 60 percent of the proceeds. The planning must consider tax-efficient alternatives that support the owner’s exit goals and reduce their financial risk.

I tell the story of an owner of a successful manufacturing business in New York that was valued around $25 million. When we completed the plan, he was confronted with the sad reality that he could not afford to sell and still retain his lifestyle.

In addition to a large salary, the company paid for his jet, vehicles, travel and entertainment. He was on his third wife, three homes and STUCK because his lifestyle could not be replaced by the sale, which leads to my next point.

Time is Your Best Friend

I’ve come to learn that exit planning is a process, not an event that occurs after we deliver the plan. It’s the complicated coordination of many moving parts that usually take more time than originally anticipated.

Writing the plan can take 5-8 months, and the delivery is just the beginning. Usually the plan is implemented within a year, but we’ve had plans take over three years due to restructuring, determining and training the succession team, and delays in order to save more money while still in control of the company.

A critical time consideration is whether the owner can utilize all the favorable tax savings that can help leverage the money needed in retirement and supplement the sale/transfer. There are numerous tools that can be implemented in an exit strategy, including retirement plans, investments, trusts and insurance vehicles that will allow Uncle Sam to subsidize the exit.

Each exit is unique and, therefore, needs to be tailored to an individual owner’s goals. Time and compounding is an owner’s best friend with investments that help leverage the exit and increase savings for retirement.

Both the owner and the company must be prepared for the exit. Once the plan and the buyers are determined then the obvious time consumer is succession and replacing the empty chair. It takes time to move senior management into leadership and replace the CEO.

Managers need this time and independence to experience the scars and bruises of running the business themselves. During this time, the owner becomes the mentor and coach, allowing the team to mature while beginning to envision themselves outside the business and in their retirement.

Once the management team gets momentum then their next level of growth is embracing leadership, thinking like owners and always putting the company first.

Making a Mountain Out of a Mole Hill

When selling to an outsider (consolidator, competition, public company or private equity) a seller wants to maximize the value of the company. A good mergers and acquisitions adviser can assist the seller with “cleaning up” the company and its records in a manner that will present the company in the best possible light and increase its value.

The bottom line is that you as an owner will be stuck in your business until you have clarity of your financial future and then commit yourself to a retirement date with the reassurance of not running out of money.