Articles and Publications

Guest column: Set exit objectives ahead of time

By Carissa Giebel • March 23, 2010

Setting ownership objectives is important, whether you've made the decision to exit or you just aren't convinced that you want to leave your company any time soon. As Yogi Berra said, "You've got to be very careful if you don't know where you're going, because you might not get there."

Setting ownership objectives is about fixing your target or describing what a successful exit looks like to you. The three primary exit objectives you must set are:

·  On what date do you want to exit your company?

·  Do you want an outside third party, or insiders (key employees, children) to succeed you?

·  How much cash will you need from the sale of the company to enjoy a financially secure post-business life?

Most owners depend on the proceeds from the sale of their companies to create financial security for their post-business lives. Let's take a closer look at that third objective because, for most owners, the amount of cash they need for retirement dictates when they'll be able to exit and whom they choose to succeed them.

In order to realistically estimate how much cash you will need for a financially comfortable post-retirement life, your adviser will create a Financial Needs Projection based on the following factors: years until desired exit, assumed rate of investment return on personal investments (both pre- and post-exit), life expectancy, annual income amount and growth in business value.

But why set exit goals if you aren't yet ready to exit? It is inappropriate to suggest that you, the creator of a business, should exit before you choose. But the cold reality is that: 1, most owners need to grow the value of their business significantly in order to exit with the lifetime income they desire, and, 2, growing value takes time.

For that reason, knowing the size of the gap between your company's value today and the value necessary for you to retire comfortably is the starting point for all planning. It dispels the tendency to procrastinate under the mistaken assumption that planning and action can be delayed and prompts many owners to take immediate action to grow and preserve value.

Exit planning begins when owners understand their ultimate objectives and what they have to do to reach them.

Carissa Giebel is an attorney with Hooper Law Office, a member of Business Enterprise Institute's Network of Exit Planning Professionals. She can be contacted at carissa@hooperlawoffice.com or (800) 794-5548.