Exit Planning for Business Owners
Lane Michel is a NAVIX Certified Consultant. He is an Exit Planning Strategist as a part of the team at NAVIX comprised of experienced and highly trained professionals. NAVIX advisors take a hands-on approach to help business owner clients chart and follow a course that builds business value and achieves exit success.
NAVIX helps business owners plan for and achieve happy exits. We have developed a process that allows business owners to exit on their own terms, achieve financial freedom, and create sustainable business legacies.
What is Exit Planning?
Who NAVIX Helps
Are you a business owner who:
- Actively works in your company?
- Seeks to exit at some point in the not-so-distant future, typically several years from now?
- Desires to reach financial freedom, but you have the majority of your net worth tied up in the business and its assets?
- Feels an obligation to people impacted by your exit: co-owners, key employees, valued customers?
- Cares about the legacy you leave behind?
- Wants advice and assistance?
- Recognizes you have one shot at success?
- Lacks time and experience to do this yourself?
Lane and the NAVIX Team are ready to help you. Let’s get started.
Why NAVIX is Important Right Now
We believe that closely held business owners make the world a freer place by creating jobs, serving customers, innovating markets, paying taxes and expanding the economy.
We witness that the owner’s very success traps them in their businesses; they are unable to reach personal financial freedom or create a sustainable business legacy without achieving a successful exit. However, the standard experience for owners is personal stress, excessive taxes and costs, concern for key employees and customers, and fear they will be unable to exit on their own terms.
Poor exit preparation or execution puts all that the owner has achieved at risk.
We strive to break the status quo, helping owners achieve financial freedom, create a sustained business legacy, and exit on their own terms.
Need a little more information about exit planning?
Most owners exit only once, and can ill afford to overlook anything or get surprised along the way. The resources NAVIX provides will help you learn how to prepare for exit. And you’ll see the value of working with NAVIX. There is a wealth of downloadable tools and articles to help you.
Questions Owners Should Ask
What is the Best Exit Strategy for Me?
Either during your lifetime or at death, your business will be given away, sold, or liquidated. These three outcomes are not exit strategies. The word “strategy” implies a desirable result. Death is not a strategy! There are, in fact, only four possible exit strategies. Identifying your strategy as early as possible creates a clear path to achieve a successful exit.
The four possible exit strategies are:
- Pass to Family
- Sell to Outside Third Parties
- Sell to Inside Key Employees
- Planned Liquidation
Selling your business to an outside buyer and selling it to one or more key employees are different strategies. Conventional wisdom often lumps these two options together as simply “selling the business.” An outside party sale is usually a completely different process from selling it to one or more employees. To successfully implement these four strategies may require four totally different sets of tactics.
How Do I Achieve Financial Freedom?
Achieving financial freedom after you exit your business does not happen without a solid plan. That’s why NAVIX developed the Exit Magic Number™ calculation. It determines the value you need from the business between now and your target exit date to achieve financial freedom. Note that the Exit Magic Number focuses on how much you need from the business, not what your business is worth. This is a different approach from most conventional approaches, which emphasize getting “maximum value” for the business. Getting maximum value is good and desirable but may not be the most important issue.
What if you succeed in getting “maximum value” but find you are unable to afford financial freedom? Is this a successful exit?
There are two reasons why the Exit Magic Number calculation is arguably the most important number in exit planning for closely held business owners. One reason is “defensive” and the other is “offensive”.
On the defensive side, the issue is simple but critical—if the owner exits for a net amount short of his or her Exit Magic Number, he or she will fail to achieve personal financial freedom in the manner he or she aspires. The owner who falls short must either reduce his or her post-exit lifestyle, take on higher post-exit investment risks than he or she is comfortable with, go back to work, or some combination of the three. Few owners would happily choose this outcome.
Knowing one’s Exit Magic Number allows the owner to take control of the process by making decisions today and at exit that defend against coming up short. For example, identifying the number well before exit helps the owner forecast how big the business must grow to in order to not come up short, and make strategic decisions that drive the business toward the owner’s exit success. In another example, an owner seeking to sell the business can use his or her Exit Magic Number calculation to negotiate the deal terms with an eye towards receiving sufficient cash at closing to reach personal financial freedom. The selling owner who walks away from the closing table with net cash sufficient to achieve personal financial freedom is assured that any additional dollars in the transaction not received at closing and therefore at risk, such as deferred payments, earn outs, seller financing etc., will not compromise his or her financial security.
Playing “offense,” owners who know their Exit Magic Number calculation can take advantage of tactics at business sale that defer and reduce income taxes, estate and gift taxes. Having an accurate estimate of the Exit Magic Number allows owners to consider estate tax sheltering strategies without undermining their future financial freedom.
How Do I Know if I am Adequately Prepared for Exit?
According to our research, nine out of ten owners stated they do not have a current, written exit plan. Most owners need guidance on what a sound plan looks like. Naturally, most owners have no idea what is required to be ready for exit, because they have never exited before. The marketplace offers little help.
A thorough and sound exit plan needs to address a variety of business, personal, financial, accounting, legal and other issues. If a plan fails to consider any one of these areas, it could not only miss an issue but possibly cause more harm than good.
The attached short, assessment overviews the 15 most important areas that an exit plan needs to address. Use this tool to quickly audit your existing exit plan, or to assist you in getting started.
What are the Most Common Barriers to Achieve Happy and Successful Exits?
Owners are Just Plain Busy
With daily business demands it’s easy to ignore an issue that you believe is five, ten or more years down the road.
Exit Planning is not Easy
Most closely held businesses are illiquid, difficult to value and vulnerable to an immense range of risks—only some of which owners can influence or control. Exiting and freeing the captive wealth can be complex and costly, especially in terms of taxes.
The Growth Myth
Growing a business is not enough to create a happy exit. If that is all it took, then every business above a certain size would quickly sell for top dollar. Exiting successfully requires more than growing your business. It requires a clear and conscious plan getting the business ready by creating transferable value, and getting the owners ready at the same time.
What Makes One Business More Desirable to a Buyer than Another?
NAVIX successfully helps business owners create happy exits because we understand what buyers are looking for. We look beyond gross sales and profits.
For a minute, put yourself in the shoes of a buyer. Based on the limited amount of information below, which business would you rather buy? What other information is important to a buyer?
Company A? OR Company B?
$20 million gross sales $10 million gross sales
$2.0 million pre-tax profits $0.9 million pre-tax profits
Revenues up 5% last year Revenues flat last year
Owners work 50 hours/week Owners work 50 hours/month
Need a little more information about NAVIX?
What is NAVIX?
NAVIX helps business owners navigate and achieve happy exits. We take a hands-on approach designed out of real-world experience helping business owners exit on their terms, achieve financial freedom, and create a sustainable business legacy. The vision and inspiration behind NAVIX is founder, Patrick Ungashick, who wrote the book “Dance in the End Zone.”
What NAVIX Does
Help business owners envision and define their successful exit.
Identify tailored strategies and tactics that will overcome the obstacles and maximize the owner’s business and personal results at exit.
Act to coordinate and implement those strategies and tactics in an effective, timely, and cost-efficient manner.
How NAVIX Works
The NAVIX team follows a dual-track process that focuses on preparing both the business and the owners for the future exit.
NAVIX is not just about planning; we also help clients execute the strategies and tactics needed to achieve their successful exit.
NAVIX clients pay a flat, no-surprise monthly retainer fee for as long as we are providing value. We strive to do work with our clients from now all the way until they happily exit.
The Benefits of Working with NAVIX
Our passion and commitment is to help owners achieve happy and successful exits. In our experience, most owners want a combination of the following outcomes when they exit:
· Financial Freedom
Even if you have little desire to ever stop working, most entrepreneurs aspire to reach financial freedom, which work is a personal choice and not a financial necessity.
· The Ideal Calendar
Financial freedom creates the opportunity to do what you want, when you want and for as long as you want, whether it’s recreational activities, travel, or other business ventures.
· Business Legacy
Some owners care deeply that their business continues as a standalone entity. Most want to make sure their exit does not harm key employees, strand customers, or abandon the values upon which the business was built.
· Personal Peace of Mind
Most owners have given many of their prime years to their businesses. A successful exit helps to promote the opportunity for renewed family relationships and friendships.