Exit Planner

Exit planning as a stand-alone profession came into existence in the early 2000s. Several industry pioneers recognized that the very complex exit issues faced by small business owners were not being addressed in a comprehensive fashion. The normal exit process was to place the business on the market for sale without much forethought or preparation. This very often resulted in a less than desirable outcome. Business owners needed comprehensive information about exit planning, and these leaders astutely realized the need was going to increase as baby-boomer business owners sought to retire. This led to the creation and formation of several primary organizations that have led the way in educating  and certifying advisors from a variety of disciplines—CPAs, estate attorneys, wealth and insurance advisors, and business consultants. It is important for you to understand the experience and specialties your exit planner has. Exit planning today is not a licensed profession, but there are several organizations that train advisors resulting in industry certification.

The term exit planning is often used synonymously with transition planning; however, there is a distinct difference. Exit planning, as the name infers, provides a roadmap for your leaving your business, while transition planning offers you the ability to change your relationship with your business, redefining your role, which may or may not include an eventual or complete exit. As defined in Cashing Out of Your Business, “A Business Ownership Transition Plan is a comprehensive written document that outlines how and when the ownership of a business will be transferred to others, either internally or externally, in order to achieve the owner’s goals.” In either case, planning to transition your business requires careful consideration of financial and non-financial goals and objectives, which must be thoughtfully integrated with your personal and business needs. The benefits you derive from this comprehensive planning are many:

• Peace of mind before and after the transition
• Wealth maximization
• Knowing what your business is currently worth and how much it needs to grow to meet your goals
• Maximization of business value prior to the transition
• Minimization of taxes and advisory fees
• Determining which options meet your goals and objectives

Let’s explore in more detail the types of transfers, types of advisors, and an overview of what this type of planning involves and the benefits.

What You Need to Know

This planning when done three to five years in advance of your desired transition will enable you to improve your marketability, enhance company value, explore options to decrease taxes and fees, and increase your opportunities for a successful exit. The lack of proper, timely planning can result in limited transfer and exit options.

Types of Exit

Internal Exit
This type of exit is accomplished by selling your company to management, employees, or other family members. It requires that a successor or succession team be in place to assume the owner’s role for business continuity and sustainability. This type of transfer includes many options, such as Management Buy-out (MBO), Leveraged Buy-out (LBO), or options with even greater tax advantages, such as the Employee Stock Ownership Plan (ESOP) or Stock Redemption plan. Typically, these types of transfers are accomplished over a period of time and may or may not result in a lump sum at transfer. In addition, you may remain involved with your company postexit for a period of time with these types of transactions. Internal transfer options play a large role in business ownership transition planning since they provide a great deal of flexibility for the owner.

External Exit
This type of exit, the third party sale, is probably the most widely known and used method of exit and transition. It involves selling to an unrelated third party, whether a customer, vendor, competitor or financial investor. It requires that the business be prepared for and positioned for such a sale well in advance. Since this exit option does not have a ready-made buyer in the form of manager-employee or family member, the buyer has to be identified and targeted. These buyers can be strategic, synergistic, or financial. These transactions typically have the highest tax consequences and fees but will usually result in a lump sum of some or all of your business value at the time of transaction. You may be asked to retain a small portion of ownership for a specific period of time in the case of a Private Equity Group recapitalization. Usually your continued involvement, if any, is for a limited time.

In either case, the type of transfer method that will satisfy your goals and objectives needs to be determined well in advance. This requires the assessment of your current personal and business situation, along with your goals and needs, financial and non-financial, posttransfer. Only in this comprehensive fashion can the feasibility of each transfer method be truly analyzed. Advisors in this field can usually be categorized into two different types of practice:

Types of Advisors

Captive Exit Planners
Captive exit planners today are employed by banks, wealth management firms, and brokerage houses for the purpose of having discussions with their business owners about their exit scenarios. They may also be smaller individual practices who sell other services, such as wealth management, merger and acquisition, business brokerage or insurance, or others. Their fees may be derived from a combination of planning fees and commission on the sale of products or services. The planning phase may also be included as part of an initial assessment free of charge.

Non-captive Boutique Firms
Non-captive boutique firms approach exit planning from a comprehensive holistic perspective and are not usually directly involved in another industry. These planners generally are compensated as consultants on a project basis, either fixed fee or hourly. This planning is usually longer term and is completed in phases, which can include assessment, analysis, and implementation. They work in collaboration with other advisors, usually in the role of “quarterback,” making sure the exit-planning work is done in accordance with the owner’s goals and objectives.

Although each type of advisor has its advantages, you should fully understand the exit planner’s role, compensation, and focus to assist you in making an informed selection. Determining their years of experience and training and seeking references are all part of doing your due diligence on any professional and should be part of the process in enlisting the services of an exit planner.

Process, Responsibilities, and Deliverables

Most exit-planning professionals follow some similar processes in creating an exit plan. The specifics of the plan will vary greatly, however, based on their education, tools, training, and areas of expertise.

The Process

Most exit-planning professionals enlist various methods to assess your current needs. Some focus primarily or entirely on the financial aspect of your personal or business goals. Others may incorporate more of the non-financial, or personal objectives. It will depend largely on the planner’s role, training, focus, and what assessments are used. Many companies and organizations have developed proprietary products for this purpose. At a minimum, the assessment should include:

• an assessment of your current business value;
• your personal financial situation, both current and future;
• what you want to accomplish with your exit;
• when you want to accomplish your exit.

The summary of this assessment will most likely vary greatly in length, depth, and interpretation depending on the exit-planning advisor, his or her level of training, and the tools utilized. The average time to complete the assessment phase is two to three months.

This part of the process takes into consideration all the above collected information and then dovetails it with possible exit/transfer options to determine the suitability and viability of each possible method.  Here the options are weighed on how they will achieve your goals and objectives from both a financial and non–financial perspective. It is through this analysis that your future income needs are considered, as well as exposing potential taxes and fees of any given transfer method.

This part of the process will vary, based on the scope of the exit plan. Most exit-planning advisors approach an exit-planning engagement from an industry focus or specialty. Therefore, they may be limited to making recommendations based on their area of expertise. It is very important to have access to collaborative advisors from all needed areas of expertise to implement an overall integrated plan. Some examples of implementation can include such areas as developing an internal succession team in order to successfully implement an internal transfer or improve a company’s quality of earnings to ready the business for external sale. Implementation takes time and is why planning in advance is of utmost importance. Typically, the implementation phase can last from a few months to a few years depending on the complexity of the business, your personal situation, and what must be accomplished to meet your transfer goals.


The Exit Planner
• Utilize a comprehensive holistic approach to the planning process
• Act with integrity and honesty
• Respect confidentiality
• Seek your best interest
• Communicate openly with you and other advisors
• Collaborate effectively

The Business Owner
• Communicate openly
• Timely respond to request for information
• Commit the time and needed resources

You and the planning professional share the responsibility of a successful outcome throughout the process. This is an individualized plan, and the integrity of the result will be determined not only by the talent and experience of the exit-planning professional but also by your candor and openness during the process. Think of this process as going to your doctor and telling only part of your symptoms while expecting him or her to give you a correct diagnosis and treatment. Communication and teamwork are of utmost importance with you and other advisors. In addition, the planner has the responsibility to seek and involve other professionals who have expertise in areas outside their own scope of specialty or licensing.  Of course, keeping the entire process confidential is always of great importance.  As with all your advisors, whether licensed or not, they should be working within a framework of honesty and integrity with your best interest as the focal point.


In most cases, you will be receiving a written document or documents that provide an overall summary or a synopsis of the different components of the plan. This may be as short as a few pages or as long as a hundred pages depending on the complexity of your plan, the extent of the analysis done, and the implementation proposed. These deliverables will be communicated to you in a written form and thoroughly explained so you have a clear understanding of your current situation, the recommendations, and the steps required to achieve those recommendations. A comprehensive plan deliverable usually includes the following:

• Analysis of what you need to accomplish in order to prepare yourself for your transition or exit
• A calculation of how much money you need from your transition
• A determination of what your business is currently worth
• What you need to do to maximize business value prior to the transition
• What steps need to be taken to minimize taxes and advisory fees
• Analysis of your transition or exit options
• A recommendation of which transfer option will best meet your goals and objectives
• Next steps to be taken during the implementation phase to accomplish the recommendations


Exiting your business is usually only a once-in-a-lifetime event, and you must be fully informed of your options and aware of potential challenges and outcomes prior to embarking on any exit path to achieve the best results. The time and investment spent preparing for your exit is trivial when compared to the possible consequences of not being prepared due to a lack of planning. Protect your largest asset and the wealth trapped inside by planning well in advance for your eventual transition. One day, we will all exit our business, whether planned or unplanned, by our design or due to an unexpected event. The choice is yours to make. Ready to dive deeper?

By Kathleen Richardson-Mauro, CFP, CM&AA, CBEC
Business Transition Academy

© 2013 Richardson Mauro & Johnson, Inc.