Read about Avidian’s acquisition of Equistar Wealth Management and our unparalleled client service in Austin here.

Close button
Close button

Sign up for the Avidian Report

Get weekly market insights in your inbox.

Published on: 09/28/2023 • 6 min read

What is an Exit Plan (and Why Does it Matter?)

For many business owners, the notion of leaving their company often arises too late, leading to rushed, and often suboptimal, decisions during and after their exit. Understanding what an exit plan should consist of, and having a robust strategy in place before you need it, are crucial for ensuring a smooth transition and securing the highest possible value for your business when it is time for you to move on. 

So, what is an exit plan in more explicit terms? An exit plan, a term often surrounded by uncertainty and confusion, is a strategic blueprint used by an owner or stakeholder to formally exit the company. 

In this article, we’ll explain the importance of an effective exit plan, dive into how to create one, and provide tips on what to consider when implementing your strategy. 

What is exit planning?

Business exit planning is an umbrella term that covers the set of activities and considerations taken when an owner or stakeholder wants to leave their business. The purpose of an exit plan in business is to establish formal directions so that all involved parties can experience a successful transition (i.e. the departing owner, remaining stakeholders, successors, etc.).

Examples of activities associated with exit planning may include:

  • Developing a timeline for the sale or transition process
  • Determining the best timing for implementation
  • Establishing a strategy to maximize value and ensure financial security in the transaction
  • Considering potential legal issues that could arise throughout the process
  • Creating succession plans and grooming key personnel to take on larger roles
  • Minimizing taxes where possible
  • Retirement planning for small business owners (consider how your exit will affect your retirement goals)

Exit planning is often multi-faceted and requires strategizing and decision-making not only from the owner but also from other stakeholders, such as partners or shareholders. Partnering with a tax specialist, lawyers, and a financial advisor who offers wealth management for small business owners and corporate executives can be helpful in making sure that the plan takes into account all possible scenarios.

Why is an exit plan in business important?

Having a well-developed and thoughtfully executed exit plan in place can save a great deal of stress, time, and money when transitioning from one business owner to another. Like transferring ownership of property from parent to child, there are often innumerable legal and monetary considerations to be made in order for even the simplest transfers to go smoothly. Without a plan, the transition process can be chaotic, costly, and time-consuming.

Without a carefully curated exit plan, several adverse outcomes can follow. The business may undergo a disruptive and disorganized transition, resulting in decreased productivity and morale among employees, which could ultimately impact the customer experience.

Financially, without a strategy to minimize taxes or maximize sale value, owners can potentially leave a significant amount of money on the table. Furthermore, in the absence of business succession planning strategies, leadership gaps can emerge, causing operational hiccups and potentially damaging the company’s reputation or market position. 

Even worse, without an exit plan, the business might not survive the transition at all, leading to job losses and potential financial burdens. With seemingly endless possibilities for disaster, the importance of an exit plan cannot be overstated.

How to plan an exit strategy for a business

What should an exit plan include? Creating an effective exit plan is a multi-step process that requires thoughtful consideration and encompasses several key aspects. Here are some of the key steps to consider when crafting your strategy. 

1. Find a certified exit planning advisor (CEPA)

What is an exit planning advisor? A Certified Exit Planning Advisor (CEPA) is a specialist who is trained and certified to help business owners develop comprehensive exit plans that work to maximize their sale price or transition value. Having an experienced advisor on board can help you create a tailored plan that aims to address the considerations mentioned above.

2. Establish your objectives

Begin by establishing what your desired outcome is — whether that be a sale of the business, transitioning to a family member or partner, or simply winding down operations. Once you’ve determined this goal, create the roadmap to achieve it.

Take an in-depth look at the company’s current financial and legal situation by obtaining up-to-date financial statements and consulting with a tax specialist. This will provide you with an understanding of the business’s current value, allowing you to determine how much money can be extracted from the sale or transition process.

4. Analyze your company’s future potential

Estimate how much value the business could generate in the future (if you were to stay). Doing this will help you understand how much value could be lost when exiting the company, which could potentially impact your decision to stay or go.

5. Identify and address key risks

Identify potential risks that could impede the exit plan’s success (e.g. legal issues such as breach of contract, operational issues such as lack of key personnel, etc.). Plan and implement protocols to mitigate these risks throughout the process.

6. Create a succession plan

If you’re transitioning your business to successors, create a detailed succession plan that documents the roles and responsibilities of each individual involved (i.e. who will take over which parts of the business). Additionally, plan out how you will transfer knowledge and make sure that the new owner has the resources to run the business effectively.

7. Determine the best timing for implementation

Timing is everything when it comes to exiting a business, so consider what timing would provide the most value or benefit to stakeholders. This could be based on seasonality, market trends, or other factors.

Plan for a smooth transition with Avidian Wealth Solutions

So, what is an exit plan? And why does it matter? An exit plan is a comprehensive strategy for transitioning out of your business, and it’s essential if you want to maximize value and minimize stress. It ensures that all relevant parties have a clear understanding of how the transition will take place, what steps need to be taken, and how they will be affected.

At Avidian Wealth Solutions, we provide comprehensive exit planning solutions and succession planning services to help business owners prepare for a smooth transition with maximum value preservation. 

Whether you’re ready to live without the risks of entrepreneurship or plan to pass the business down to your heirs, our experienced team of advisors (including 3 CEPAs) can create customized plans tailored to your individual needs, involving everything from tax planning strategies to asset protection protocols and alternative investing strategies

Schedule a conversation with us today for more information about our services or to discuss your specific business exit planning needs.

More Helpful Articles by Avidian: 

Please read important disclosures here

Chevron right

Get Avidian's free market report in your inbox

Contact us

Schedule a conversation

Curious about where you stand today? Schedule a meeting with our team and put your portfolio to the test.*