Issue 72

Your Target Departure Date The First Of Five Elements In Every Successful Exit Plan

In past issues of The Exit Planning Navigator®, we have discussed the step-by-step process that business owners use to plan successful exits from their companies. We've talked about why you need to go through this Exit Planning Process (even if you never plan to exit) and how to find advisors who can help you through the Process.

This Exit Planning Process developed by Kevin M. Short, Managing Director of Clayton Capital Partners, is owner-based. In other words, its foundation are your exit objectives: when you want to leave, how much money you want when you leave, and who you want to succeed you. Once you have determined those objectives, you and your Exit Planning Team (a successful Exit Plan requires the expertise of a number of trained, experienced professionals working together) can proceed through the rest of the process: determining and, if necessary, building business value, handling business continuity and estate planning issues and finally, executing the transfer so that it meets your financial and other goals.

For some owners, that thumbnail sketch is adequate. They know they should be planning for the most significant financial event of their business careers and they like the fact that this planning Process is all about them. Others however, want to know more. They want to know exactly how the process works or, why they can't just skip some of the steps.

In an effort to answer that question, or at least part of it, we begin here a series of articles that describe the five most basic elements of an Exit Plan. These are the pieces of information that you must decide or collect before anyone can create a coherent or comprehensive Exit Plan. The five elements are:

  • Your Target Departure Date
  • A preliminary financial needs analysis
  • Your desired successor
  • A preliminary valuation of the company
  • An estimate of future company cash flow

It is important to work with an advisor trained in Exit Planning. You should know that he or she can organize all of the information necessary about you and your company to create a comprehensive Exit Plan. You should also know that without the five elements listed above, your advisor cannot begin to create your Exit Plan.

In this issue of The Exit Planning Navigator®, let's take a look at the first element, your Target Departure Date.

Setting a Target Departure Date is absolutely indispensable to creating an Exit Plan. An Exit Plan for an owner who wants out in two years will look quite different than the Plan for that same owner willing to stay for ten.

Some owners, however, attempt to avoid establishing this date because they believe that they must carve it in stone. In reality, the departure date is the objective most likely to be adjusted-and often, adjusted repeatedly.

Other owners are uncomfortable picking a date out of the air. These owners are better able to establish a date if it relates to an event. For example, you may want to work until your children reach a certain age or level of education. You may want to work until the business value reaches a certain level. Other owners calculate the number of active years they want to live without working to arrive at a departure date. However you arrive at a date, you must set this important goal and give the Plan a framework within which to operate.

Until you do, you and your Exit Planning Team cannot begin to create a successful Exit Plan.

Subsequent issues of The Exit Planning Navigator® discuss all aspects of Exit Planning.