What is an Exit Plan? (And Why Every Business Owner Needs One)

Erik Sullivan

Sellers Seller Articles Seller FAQ

As a business owner, one of the last things you usually want to think about is parting ways from your company. Preparing to say goodbye to it can feel like losing a part of you. 

And for many, planning to sell what is often your largest asset is frightening. It means looking at reality - and for many, this is a difficult step.  

However, the alternative is much more frightening. With no exit plan, you risk falling short of your family’s long-term goals and aspirations.  

Most of the world will make decisions by either guessing or using their gut. They will be either lucky or wrong.

- Suhail Doshi, chief executive officer, Mixpanel

At MidStreet, we have counseled many business owners through creating an exit plan for their business. 

In this post, we will cover what exit planning is, what is involved, why you should do it, the components of an exit plan, and who can help you create one. By knowing these key details, you will begin to understand how an exit plan fits into your life and sets up a successful future for you and your family.

Let’s begin. 

What is Exit Planning?

At its most basic level, an exit plan defines your current state, establishes your goals and timeframe for selling, and sets a roadmap to get you from where you are to where you want to be in that timeframe.

At a minimum, you should try to plan your exit from your business a year in advance. For best results, you should start 3-5 years in advance.

Exit plans will vary in complexity and time frame.

Some exit plans include 2/5/10 year business and personal goals, financial projections, a summary of the owner’s tax consequences, estate planning, and specific key performance indicators (KPIs) that must be achieved to meet those goals.

Others might just be a statement of the business’s current value, a goal value, an exit date, and a rough idea of what financial performance the business needs to achieve that value.

Exit planning doesn’t have to be time-consuming and complex. It is mainly about learning how businesses are priced, thinking about your future, and understanding the small changes you can make to reach your goals. 

Being detailed and thorough for some will be a necessity, but in the great words from Brian Tracy’s Goals!: How to Get Everything You Want Faster Than You Ever Thought Possible:

When you are absolutely clear about your goal, you do not even have to know how to achieve it. By simply deciding exactly what you want, you will begin to move unerringly toward your goal, and your goal will start to move unerringly toward you. At exactly the right time and in exactly the right place, you and the goal will meet.

- Brian Tracy

Why You Should Exit Plan

You only get one shot to sell this business. You may sell multiple businesses in your life - but you only have one chance to sell this one. 

The consequences of the sale will impact your financial future, reputation in the community, relationships with employees, and several aspects of your daily life. 

By creating a plan early on, you will be financially and emotionally prepared for your next endeavor after you sell, whether that be retirement or another business opportunity. 

Exit planning makes these details more certain because it: 

  • Helps you understand the process of a sale in advance 
  • Makes your transition out of the company easier
  • Makes it an easier transition for your employees
  • Forces you to identify business weaknesses 
  • Gives you more realistic expectations of the sale 
  • Helps you emotionally prepare for the sale 
  • Reduces the time it is going to take to sell 
  • Reduces the taxes of your sale 
  • Increase the value of the company you are selling 

Almost any problem can be solved if you identify it early enough. By not planning ahead of time, you are risking your ability to sell in the future.

Goals not only help you develop initial motivation by making your dreams obtainable, they also help you continue to be motivated and that creates momentum.

- John C. Maxwell

What is The Process of Exit Planning?

The process of exit planning is broken down into three major steps: 

Step 1: Establish where you are

Step 2: Establish where you want to go (timeline, financial, etc.)

Step 3: Make a plan to get there

The best place to start your exit plan is with your wealth advisor, business intermediary, and CPA.

First, sit down with a trusted M&A advisor and perform a business valuation.

Once you have a valuation, consult with your CPA and discuss the tax consequences of your sale.

Finally, meet with your wealth advisor, share the findings of your CPA and M&A advisor, and discuss your personal goals for the future.

Then, determine with your advisor's assistance how far off your goals you currently are, and make a plan to reach those goals.

Your life does not get better by chance, it gets better by change.

- Jim Rohn

What Are The Key Components of an Exit Plan?

There are six main components of an exit plan: 

1. Business Valuation

This is the most critical component of the entire exit plan. Without an idea of how your business is priced and where it’s at today, you won’t be able to effectively make changes to get where you want to go. 

Want to figure out the value of your business? Speak to us about getting a free valuation today. 

2. Summary on The Current State of The Business 

In the summary of the current state of your business, you will include things like: 

  • How involved in the business you are 
  • The stability of your revenue streams 
  • The level of customer concentration you have, if any
  • Business risks and strengths
  • The tenure of your employees 
  • The level of documentation you have on operations
  • The quality of your supplier relationships 

These are just a few examples, but the details included will differ based on your type of business and how it is structured.  Be as honest as possible about where things are at today, so you can clearly set goals for what is important. 

3. Personal Goal Statement  

Your personal goal statement will consist of business, family, estate, and personal goals. You will frame the statement of your goals as it relates to the sale of your company and when you would realistically want to sell. 

You should consider things like “When do I want to sell?” and “What do I want my life to look like as it relates to the business and the eventual sale of it?” 

As for writing the goals, there are several different methods you can select - we prefer the teachings from Brian Tracy’s Goals! How to Get Everything You Want - Faster Than You Ever Thought Possible.

4. Factors Driving the Value of the Company 

Once you have a business valuation done, make sure you understand what is driving the value of your company. Ask questions if something doesn’t seem clear, and learn what factors can make your business more marketable when the time comes to sell. 

In your exit plan, name the factors that are driving the company’s value, and set your action plan around maximizing these factors.  

5. Create an Action Plan 

Once you have identified your goals, you need to create your action plan to achieve them.

Let’s say your goal is to pass the business down to your daughter in 5 years. An example of your action plan could be:

Action Plan: This year I will promote my daughter to operations manager and pair her with an experienced leadership coach who is familiar with our industry to hone her leadership skills. 

Based on your specific goals, your merger and acquisition (M&A) advisor or exit planning advisor will be able to assist you in thinking through this action plan.

6. Review Your Exit Plan on a Regular Basis 

How regular? Most wisdom on goal setting and achievement would say every day if you’re serious about achieving them. Or in Les Brown’s opinion:

Review your goals twice every day in order to be focused on achieving them.

- Les Brown

However, goals are only one part of your exit plan. We would recommend reviewing the entire plan at least once a quarter, but keep your eye on the goals you are looking to achieve with your plan. 

Who Can Help You Plan Your Exit? 

There are six types of people that can help you create an exit plan for your business: 

1. You

You are the only person who can initiate the exit plan - which is why so many owners fail to exit plan. Do not think you can just hire someone to do this for you. 

You can take the free exit planning sheet we put together, get a valuation, and you will be 80% of the way there. 

2. CPA 

Depending on how your business is structured, you may need to speak to a CPA about restructuring your corporate entity. Business owners with C-corps can face double taxation if they sell their business in an asset sale.

Even if you do not need to change the corporate structure of your business, you should still consider consulting a CPA to discuss if you may need to change the way you are reporting your income. They can help your clean up your balance sheet to correctly show what you are earning. 

3. Attorney 

An attorney can speak to you about what you may want to change before the sale of your business. For instance, you may want to move assets around that your current corporation owns. 

If you own real estate not related to the business, in the business entity you are selling, an attorney can help you transfer those assets out of the current one into a different one prior to selling. This is important to do before you go to sell. 

4. M&A Advisor

Your M&A advisor can help you see things from a 10,000-foot view to understand what you need to do to prepare to sell. They can bring up common issues you may face when you go to sell based on your individual company characteristics. 

They will also walk you through your business valuation and explain how your business is valued and how the current market would price it. 

5. Wealth Manager

A wealth manager can help you figure out what your financial picture looks like, what you can do with your money, what you need to retire. 

By knowing these figures, you will be able to plan out your financial future and further structure your exit plan to achieve your financial goals. 

6. Exit Planning Advisor

An exit planning advisor can help keep you on track with your plan from start to finish. Since they specialize in helping business owners exit their business, they will be able to clear up any questions you have about the exit planning process. 

Create an Exit Plan to Sell on Your Terms

Exit planning is a process that will help you remove the uncertainty from the future sale of your business. By knowing what an exit plan is, what it is composed of, and who can help you create one, you can get started on successfully planning your exit. 

Preparing your exit plan can be an emotionally daunting task, just like deciding to sell your business. Learn more about the emotions that may arise by reading “The Emotions of Selling a Business.” 

We have helped many business owners prepare for their exit ahead of time so that they could sell their business successfully. If you are thinking about planning your exit from your business, give us a call today. 

Know Your Company's Worth

Prepare to sell by determining the value of your business.


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