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4 Simple Steps to Start Your Business Exit Plan

May 31, 2023
Hancock Whitney Financial Planning
Hancock Whitney Financial Planning

You know why you need an exit strategy for your business. You know you should start sooner rather than later - well before your planned retirement date. But how do you actually get started? These steps will help you begin putting your plan together.


4 Simple Steps to Start Your Business Exit Plan


Set your goal

Your personal goals for retirement guide your budget, which may impact the funds you need to net from  your business. Thinking about what you'll do with your days after retirement also helps you mentally prepare for this major transition to your routine.

Your business exit goals also matter. For instance, do you hope to transfer the business to a family member or key employee, or is your main objective to get the best price possible, regardless of buyer? Do you have an ideal timeline for exiting - as soon as possible, as long as it takes, or somewhere in between?


Consider your personal financial resources

Review the financial resources you'll rely on for retirement income - such as retirement accounts, investments, Social Security benefits, pensions and annuities. Compare that income to expected expenses based on your retirement goals. This can show you whether your assets are likely to fully fund your desired retirement or whether you'll have a funding gap.


Fill any funding gap

If you do end up with a funding or value gap between your expected retirement assets and expenses, there are many ways to fill it, including the ideas below.

  • Revamp your personal financial habits. You might revise your retirement vision, reduce debt before retiring or reduce spending now so you can save more. You could also increase your retirement income by leveraging income producing assets or taking on part-time work in retirement.

  • Maximize and grow business value. This may lead to a higher sale price, netting more funds for your retirement. You can approach this task in multiple ways, such as analyzing cash flow, or enhancing working capital efficiency, inventory turnover and cash collection cycles. You may also want to start paying for personal expenses that have run through the business (like a company car). This may increase earnings before interest, taxes, depreciation and amortization (EBITDA), helping to more accurately reflect the earnings potential of the business.

    In addition, consider establishing a corporate management structure that, over time, will make the business less dependent on you as the owner. This may make it more attractive to outside buyers.

    Finally, you might choose to push out your retirement date, allowing more time to grow the business value in hopes of a higher sales price.


Evaluate exit strategies

It's important to understand all available exit options, and the pros and cons of each strategy. Your personal and business objectives should always be a major guiding factor when helping choose the exit option that is right for you.

The financial resources needed can also dictate the exit option you ultimately choose to execute, depending on how reliant your retirement funding is on the proceeds of your business. Your business may not net the same proceeds regardless of how you exit.

For instance, if you gift your business to a family member or charity, its worth will likely be based on fair market value as determined by a professional evaluator. A gifting strategy may net little to no liquidity, making them more appropriate if you have adequate retirement assets to fund your retirement goals.

The highest sales prices are generally associated with third-party sales or private equity group recapitalization, making these good options if you need to maximize proceeds to support your retirement. With these options, the worth of your business is essentially whatever the buyer or investor is willing to pay. However, netting the highest sales price may not always result in the highest net proceeds. You should work with a CPA and tax attorney to review your individual tax situation, and what the net proceeds may be for each exit option you are considering.


Help to get started

By considering these steps well before your target exit date, you'll have ample time to work through different scenarios and find the strategy that makes sense for you. Once you have a plan, though, don't file it and forget it. Revisit it periodically and revise as needed.

Your Hancock Whitney banker can help you with the next steps in building your business exit plan, from reviewing your financial plan, to conducting an informal business valuation, identifying any funding gaps and helping you find solutions.


Talk to a Private Banker


The information, views, opinions, and positions expressed by the author(s), presenter(s), and/or presented in the article are those of the author or individual who made the statement and do not necessarily reflect the policies, views, opinions, and positions of Hancock Whitney Bank. Hancock Whitney makes no representations as to the accuracy, completeness, timeliness, suitability, or validity of any information presented.

This information is general in nature and is provided for educational purposes only. Information provided and statements made should not be relied on or interpreted as accounting, financial planning, investment, legal, or tax advice. Hancock Whitney Bank encourages you to consult a professional for advice applicable to your specific situation.

Hancock Whitney Bank offers other investment products, which may include asset management accounts, as part of its Wealth Management Services. Hancock Whitney Bank is wholly owned subsidiaries of Hancock Whitney Corporation.

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