Business Owner’s Exit Planning 101

May 2018



A business owner’s exit is a once-in-a-lifetime transformation. We’re not talking about selling a house or a car. This is a complex process that requires the technical expertise of a team of trusted advisors. It must begin with personal reflection on the part of the owner regarding what he or she wants out of the business exit. Only then can the owner, along with his advisors, design an appropriate exit strategy. Contrary to what many believe, a sale to an outside party isn’t the only option. This article provides a Process by which to assess all the options.


Like snowflakes, each business exit is unique. However, any business owner can use the following five (5) steps to determine his or her Primary Goals and align his thoughts and plans accordingly. These five (5) steps break down into two (2) parts:



  • Part I includes step #1, #2, and #3, which work together to define the owner’s goals, determine the value of the business, and the type of transaction required. If goals are not met, then the process repeats until the right solution is found.


  • Part II includes steps #4 and #5, which guide the owner in the practical steps to completing the transfer defined in Part I.

Step 1

Define the Personal Goals of the Owner


Since personal goals intertwine so closely with the daily existence of a private business owner, it only makes sense to begin with the basic albeit crucial question, ‘What do I want to accomplish with my business exit?’ The answer seems obvious–make the most money after taxes and fees. Often, however, it isn’t this simple. Owners have nourished and raised their businesses from infancy; they typically care a lot about who will take the reigns. Family members might also be involved in the business. Their fate depends on the owner’s next steps. Aside from money, other motives for a business exit can include ‘transfers to family’, ‘transfers to employees’, ‘transfers to co-owners’, ‘partial transfers to gain some liquidity today but still run the company’s day-to-day business’, or ‘an initial public offering’. The decision often comes down to a question of liquidity. A substantial source of liquidity outside the business makes for a much easier choice. More often than not, however, an owner’s wealth is tied up in the business. The owner must therefore balance his financial and interpersonal goals in order to find the best possible exit strategy. An assessment of the range of values for the business is therefore a crucial next step.


Step 2

Understand that a Range of Values Exist for the Business


The value of a privately-held business depends largely upon who buys it. It’s not as simple as watching the ticker tape for today’s stock price. The type of buyer can impact both the price placed on the shares (or assets) of the business and the tax consequences to the selling owner. Value, or ‘net transfer price’, is therefore a ‘range concept’. ‘Internal’ transfer to employees, family, and co-owners provide fewer dollars up front, but allow for greater ‘control’ of the business, ‘continued income’, and flexible timing and tax characterization of payments to the exiting business owner. By contrast, ‘External transfers’ to other industry players, financial groups, or by initial public offering, command more liquidity ‘up front’ while the owner relinquishes more control over the Company and the timing and tax characterization of payments. A closer examination of the transfer options can help an exiting business owner determine the right balance of money and control over the future of the business.


Step 3

Examine the Options Available for the Transfer of Shares


There are seven (7) primary purchasers of privately-held business stock (or assets):


Parties to the Transaction and Types of Transactions Available (samples; not a complete list)


Internal Parties:

  1. Employees                                     Employee Stock Ownership Plan
  2. Charity                                           Charitable Remainder Trust
  3. Family                                            Gifting Program
  4. Co-owners                                     Leveraged Buyout


External Parties:

  1. Financial Groups                         Recapitalization
  2. Industry Buyers                         Acquisition (at Synergy Value)
  3. Initial Public Offerings             IPO (at Public Market Value)


Based on the primary Goals defined in step one (1), an exiting business owner chooses the ‘party’ to whom the business will be transferred. That designee, once chosen, will determine the limits or expansion of the Value. At the end of this phase, the process comes full circle as the Value (after taxes and fees) is matched against the owner’s Goals. If the two meet as one, congratulations! A successful business exit strategy has been devised. Now it’s time to execute.


Step 4

Provide Full Financial Disclosure to the Buyer


The next step isn’t going to be easy on the owner. Assembling financial records and presenting them to a buyer/successor is very time consuming, not a lot of fun, a very personal survey of how the business is run, and, therefore, a huge psychological block for many exiting owners. Remember that any savvy buyer (or successor) to a business will need to understand the financial condition of the Company. When an owner must fess up to any ‘creative accounting’ they have employed over the years to help build wealth and reduce tax bills, the process goes smoother. Full disclosure is the best path to a seamless process. An old saying is that ‘if the truth will kill a deal, then there is no deal’.


Not only that, but it may reward the owner in the end. Full disclosure is not about passing judgment but instead, affords the buyer or successor an opportunity to assess the business’s true profit potential. The astute exiting business owner will recognize this in advance. Why? Because most ‘creative accounting’ practices depress the profitability of a business. Clear those away and the Buyer will recognize a higher earning power and in turn a higher Value for the Company.



Step 5

Assemble Your Advisory Team –

Don’t Go It Alone


Remember, a business owner’s exit is a once-in-a-lifetime transformation. It’s not the time to take short cuts or pinch pennies. Invest the time and money in the right team of advisors; a successful business exit is more than worth it.


We understand business owners are independent self-starters. If they weren’t, their businesses wouldn’t be so successful and we wouldn’t be talking. But these strengths can lead many owners to attempt the ‘do-it-yourself’ business exit strategy. This can create an unnecessary time and money drain on the owner and the business. Think about all the tasks a business owner delegates every day because it’s simply more productive than doing it himself. Why not make the exit strategy more productive by getting educated, making a sound, proactive plan, and hiring the right people to execute it? Think of it as an investment in success.




Exiting a business brings both satisfaction at achieving an important life milestone and an unexpected challenge. The key to any successful business exit is planning. The planning steps in this article are designed to help the business owner define his or her personal goals, understand all the transfer options, and act as a primer for the advisory team to execute a successful transaction that meets the owner’s Goals. If you’ve come to the end of this discussion, you’re already ahead of the game.


Eric C. Bratt   508-954-0376c

Business Legacy Strategies