This Way To The Egress: Exit Planning for Business Owners

Cynthia Umphrey
December 17, 2007 — 1,385 views  
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If you own a business, you will leave it at some point, voluntarily or otherwise. In fact, statistics say that approximately 60% of business owners in the United States intend to leave their business within the next 5-10 years. Do you have a plan detailing how this will be accomplished? Whether you want to sell to a third party, key employee or family member, to obtain the maximum amount of money and to accomplish your financial, income and estate planning goals, you need to have an Exit Plan. This article briefly outlines eight steps you must take to develop an Exit Plan and achieve your goals. Step 1. Form a compatible and skilled advisory team that focuses on Exit Planning. This team should consist of an accountant, a lawyer, and insurance professional and/or financial planner. Work with your team to fine tune and adjust your exit goals and plans. Obtain a legal audit to flag any obvious legal problems. Step 2. Work within your advisory team to establish: a. How much income you will need each year for financial independence. b. Your proposed departure date. c. To whom the business should be transferred: family, key employee(s), co-owner(s) or outside third party. d. The value of your business according to IRS rules. Step 3. Develop and implement programs to motivate and keep your key employee(s). Your key employee(s) are crucial to maintain and increase the value of your business. Step 4. Continue to work with your advisors to keep your tax burden (often a significant hurdle in an Exit Plan) as manageable as possible. Conduct a fiscal year-end meeting each year to keep your Exit Plan on track. Step 5. Have your attorney draft the documents necessary to implement your Exit Plan. Step 6. Where family is in the business, ensure they understand the plan. Familiarize other family members with the plan as well. This will help to minimize family disputes. Step 7. Each year continue to review and refine your Exit Plan as necessary. This will help you to achieve your goals. Devise and document an estate plan that meets your personal tax and business objectives. If your personal finances don’t work, neither will your Exit Plan. Be certain your money will go where you want it to go when you die and that the IRS gets as little as possible. Step 8. As you can see, once your Exit Plan is developed, you will monitor it to keep it (and/or your goals) on track. Sometimes one aspect of your plan will demand more of your focus. This could be income tax, business succession or personal finance issues. With an Exit Plan, you will not deal with these as stand- alone issues. Instead, they will be a cohesive part and addressed along with all the other elements in your Exit Plan. Keep your goals in mind. Remain committed to the Exit Planning process and use an advisory team who have the skills, the training and the personality to develop and implement a successful Exit Plan. If you do these things, you are much more likely to have a healthy business, to leave your business in style and prevent many family disputes.

Cynthia Umphrey

Kemp Klein Law Firm

Cynthia Umphrey helps families and business owners make significant personal and professional life decisions. Ms. Umphrey calls upon over 10 years of experience in estate planning, probate administration, business structuring and business exit planning to guide you though life's most important choices.