Comprehensive exit planning involves more than just maximizing the sale value; it covers personal wealth strategies, family protection, and post-sale adjustments. It highlights the need to consider wealth retention, managing sudden wealth, and non-financial concerns like job security for managers, beyond just the sale price.

In family enterprises, while passing ownership to heirs is preferred, selling to outsiders can make sense in cases of no family successors, health issues, or attractive external opportunities. Successful entrepreneurs increasingly adopt this holistic approach of combining corporate exit planning (the sale) with personal and family wealth optimization by starting with setting clear goals, involving family members, and seeking professional guidance, followed by elite wealth and corporate exit planning.

Elite wealth planning

Elite wealth planning primarily focuses on the personal aspect of wealth management. It’s a comprehensive process that integrates technical expertise, legal strategies, financial products, and the human element, which encompasses everything and everyone important to you, as well as those affected by the wealth planning decisions. These components are synergistically aligned to ensure coordination among the various elements. Entrepreneurs pursuing elite wealth planning typically aim to achieve two main objectives:

  1. Structure the ownership of a company to minimize taxes. There are different possible strategies that you can use, depending on your situation, to lower (and in some cases eliminate) the taxes you would otherwise have to pay on the sale of your company.
  2. Protect assets (including your company) from unfounded and frivolous lawsuits. It is possible to legally insulate your wealth (depending on the situation). This often takes on a greater degree of importance among family-run busi­nesses, when the business is converted into liquid wealth.

Corporate exit planning

Many business owners often sell their companies for less than their full potential value due to their lack of expertise in the selling process. While they excel in running their businesses, they may make mistakes during the sale, ultimately shortchanging themselves. To avoid this, corporate exit planning offers a strategic approach to selling a business, aligning the sale process with the owner’s overall goals and concerns.

Starting the planning well in advance of the sale is advisable, as it may take months or even years to prepare for a maximum-value sale. For instance, family businesses reliant on founders may need to groom capable successors who can effectively replace the founders, a process that can span several years.

Creating a robust corporate exit plan involves several key steps:

  1. Valuing your company: Determining the company’s worth is a blend of science and art.
  1. Identifying drivers of business value: Recognizing aspects that make your company attractive to potential buyers is essential for marketing and negotiation.
  2. Leveraging value enhancement opportunities: Taking actions to improve the company’s valuation, such as addressing management issues or eliminating personal expenses.
  3. Analyzing exit options: Considering various potential buyers, like family, management, competitors, or private equity firms, and evaluating the implications of each option.
  4. Strategically deciding when to sell: Assessing macroeconomic factors, business cycles, and personal circumstances to identify the optimal time to sell.
  5. Effectively marketing the company: Marketing plays a vital role in attracting a larger pool of interested buyers, creating a competitive environment that can benefit the seller.

By following these steps in corporate exit planning, business owners can increase the chances of achieving maximum value when selling their companies.

Revisiting your plan post-sale

After selling your business, significant personal changes will likely occur, making elite wealth planning crucial. This includes upgrading your estate plan, revising asset protection strategies, and managing the substantial liquid assets from the sale. If you lack expertise, it’s vital to find professionals who align with your financial goals. Additionally, post-sale, many families increase their philanthropic efforts, requiring charitable planning and the establishment of philanthropic vehicles like private foundations and donor-advised funds to support meaningful causes.

Final Thoughts

A comprehensive exit plan for business owners serves four key purposes. First, it clarifies both personal and business objectives, providing a clear focus on goals. Second, it ensures that the sale of the company fetches the best possible price, considering predefined parameters. Third, it minimizes tax implications, allowing for the retention of the maximum after-tax profits. Finally, the plan positions the owner to effectively manage and protect their wealth after the sale. If you haven’t developed such a plan, it’s advisable to consult a financial professional for guidance and advanced planning, as having one can prove invaluable when it’s time to exit the business.

ACKNOWLEDGMENT: This article was published by the VFO Inner Circle, a global financial concierge group working with affluent individuals and families and is distributed with its permission. Copyright 2022 by AES Nation, LLC.

This report is intended to be used for educational purposes only and does not constitute a solicitation to purchase any security or advisory services. Past performance is no guarantee of future results. An investment in any security involves significant risks and any investment may lose value. Refer to all risk disclosures related to each security product carefully before investing. Homer Smith is an investment advisor representative of Konvergent Wealth Partners. Konvergent Wealth Partners and Homer Smith are not affiliated with AES Nation, LLC. AES Nation, LLC is the creator and publisher of the VFO Inner Circle Flash Report. Investment advice offered through Integrated Partners, doing business as Konvergent Wealth Partners, a registered investment advisor. Integrated Partners does not provide legal/tax/mortgage advice or services. Please consult your legal/tax advisor regarding your specific situation.