Google “exit planning”. Did you get about 29 million results?
Now, discard those related to pulling troops out of foreign countries.
You are still left with thousands of links to the websites of advisors that promise to help you leave your one-person or multi-owner business, right?
In those links you will find consultants who will help you build business value or ensure family harmony. Perhaps an insurance agent will help you finance business continuity. Attorneys will draft buy-sell, asset and stock purchase agreements. Investment bankers and business brokers will market your business to attract the perfect buyer. Valuation analysts will accurately estimate your business’s value, banks will provide creative and traditional financing – the list can go on and on!
Feeling overwhelmed by all the choices? And by the amount of your time needed to keep track of them all?
Business Exit Planning Doesn’t Have to be so Hard
We work – on your behalf – with the best from each of these professions. And unlike them, we have no vested interest in your choice of successor. We are “successor agnostic,” but are true believers in business exits that achieve your unique goals. In that, we are totally owner-centric!
Obsidian’s Owner-Centric and Successor-Agnostic Business Exit Planning Process
The exit planning process that we use takes you from where you and your business are today to where you want to be in the years after you exit. The process organizes all of the moving parts and players and keeps all advisors accountable to you. Why? Because we understand that your business is likely your biggest asset and income generator. Converting that asset to cash could be the biggest financial transaction of your life.
We don’t care who you choose to succeed you. We care what your exit accomplishes.
We don’t care whether you sell to a third party, your favorite child, next-door neighbor, fiercest competitor or biggest private equity group on three continents. Our only concern is that your business exit achieves all of your goals. That’s why Obsidian’s business exit planning process starts with finding out exactly what those are.
Step One: It’s All About You
What Do You Want From Your Business Exit?
We believe that your goals are the foundation for all planning—whether financial, estate, exit or succession. We use The Lifestyle Protector Process™ with business owners and non-owners alike to help organize and prioritize goals. When working with owners to create the “life after business” that they desire, we begin with goals.
- What lifestyle do you desire after you leave your business?
- When do you want to exit your business?
- Who do you want to succeed you in ownership: a child, co-owner, key employee or unrelated third party?
- What legacy do you want to leave?
Once set, these goals establish the endpoint for the exit plan that we’ll work with you (and some of your other advisors) to create!
Step Two: Where Are You Now?
Once we understand your goals, we will work with you to quantify your current business and non-business resources. Without an accurate understanding of your existing resources (including business value) and a realistic assessment of the value of your business when you plan to exit, how can you be certain that you will have enough cash to fund the post-exit life you desire for as many years as you are likely to live?
These calculations are critically important, so we don’t rely on balance sheets used in banking relationships. We dive into your expenses—including those paid by your business. We pay close attention to current and future cash flow because no matter which exit path you choose, healthy cash flow fuels success. We calculate the taxes on the future liquidity event, and if applicable, the broker’s or investment banker’s fees. We find that the vast majority of owners attribute too much value to their companies but undervalue the amount of cash it will take to fund the post-exit lives they desire. The consequences of these miscalculations are enormous!
Step Three: Grow Business Value
For the owners who must build business value because the sale proceeds that they’ll likely receive at closing won’t support the post-exit lives they wish to live, there is good news. We know how to increase business value because we’ve spent years doing just that. Specifically, we know how to work with owners to install or enhance the systems, practices and management teams that make businesses valuable.
We also know that there’s a direct relationship between the role you and your management team play in your company and your company’s value. We look at your role: what it is and what you’d like it to be. We assess the systems you use to motivate your employees to build business value. If your team is not capable of running the company in your absence, even for short periods, with your help we’ll change that.
Finally, we assess the risks to your business, from inside and out. We also determine if you are doing all you can to minimize both your personal and business tax liability.
Step Four: Choose the Best Successor For You
In our Business Exit Planning process, it is only after we understand your goals, realistically assess business value, and implement recommendations to increase business value that we tackle the question of which type of successor is best for you. You may already have a successor in mind. That’s great! Every step you’ve taken so far is hugely valuable in making the exit you envision successful. But do you understand the pros and cons of your chosen successor? Every type of successor has them.
In this step we compare successor options: child, key employee, co-owner, and unrelated third parties (including Employee Stock Ownership Plans). We’ll look at the pros and cons of each to determine which possible successors fit your goals.
And here’s where that “exit-agnostic” part comes in: we don’t help owners sell or transfer their companies to only one type of successor. We have experience in all types of exits. Most importantly, we deploy strategies to mitigate the disadvantages of each. For example, let’s say you wish to transfer your business to your children. It is very likely that they do not have enough cash to purchase your business for as much as you’d like, or worse, for as much as you need to live the post-exit life you desire.
We aren’t magic – but give us enough time and we’ll deploy some creative strategies to put cash in your pocket and transfer your business to your children at a price you can happily live with – and they can afford.
Step Five: Protect Your Family and Business With A Succession Plan
To this point, we’ve talked about your planned business exit. But let’s be realistic: stuff, bad stuff, happens. Some owners don’t reach their planned exits and instead leave via death or disability. Without proper succession planning either one of those events can kill a business and with it a family’s future.
But you have a buy-sell agreement in place? Great! Let’s review it. Let’s see if that formula used to calculate value when you signed it is outdated or equally fair to the departing and remaining owner. Let’s make sure it provides the cash necessary to replace the financial resources you provided. Let’s determine if it provides the cash necessary to keep key employees in place when they justifiably wonder about the future of the company without you. Let’s figure out if the agreement generates enough cash to hire someone with the talents and contacts that you have.
Or are you a sole owner with no buy-sell at all? We’ve got some ideas for you.
All owners want their families to be secure if something happens to them. In this step, we help you do what it takes to achieve that goal.
Step Six: Integrate Your Exit Plan and Estate Plan in Rockville MD
If your business is your largest asset, as it is for most owners, you’ve got some big estate planning challenges. Your business isn’t very, or at all, liquid. Your heirs can’t sell it on a market as they can sell stock of a publicly held company. Still, you want your heirs to receive the benefit of your life’s work.
We work with attorneys who are pros when it comes to crafting estate plans for owners of closely held companies. We don’t just refer you to them, we work with them because we understand your goals and we know the value of your company. We bring that knowledge and our experience to the table to make sure that your estate plan complements the exit plan we’ve crafted for your business.
A Word of Warning Regarding Business Exit Planning Advisers!
Beware advisers who tell you that they know “the best” way for you to exit your business! No one knows what way is best for you until they understand your goals for your business, your family and yourself.
There are a lot of moving parts to an exit plan. That’s why Obsidian uses a proven, organized process to create comprehensive plans that are as unique as you are.
Don’t hesitate to call us now for a complimentary consultation!
Obsidian Business Planning Solutions Rockville MD 301-990-4395!