What is Exit Planning?

An exit plan describes an entrepreneur’s value creation target, the strategies they will use to get there, how they intend to exit, and everything that needs to happen to exit successfully. Many small businesses and lower middle market owners fail to plan for an exit, resulting in missed value creation opportunities and less than optimal exits.

The Purpose of Exit Planning

Exit planning is the process business owners, and their advisors go through to establish value creation targets, to develop value creation strategies, to realize financial gains from a business investment after they have met or exceeded their goals for work, to limit losses when exiting a non-performing investment or unprofitable business, and prepare for the actual transition out of their business.

Business owners may need exit planning when significant changes in market conditions occur, for example, a catastrophic event. Other reasons to exit a business include litigation, divorce, estate planning, or retirement. Exit planning is also a contingency strategy to prepare the company for sale or transition to new management.

Value Scout was built out of the recognition that value and lack thereof are the #1 reason transitions take longer than they should or why they fail. As a result, value sits at the heart of exit planning.

As an exit planning advisor, you need to plan owners’ exits from their businesses far ahead of when they will happen. This planning ensures that transitions meet those business owners’ economic and personal needs and the ongoing needs of the business and its employees.

The Five Steps of Exit Planning

Value Scout suggests a 5-step framework for exit planning that involves establishing a baseline value for the business, identifying the needed value to be created, building and implementing value creation plans to close the gap, preparing the company for an exit, and facilitating the transition.

Exit Planning 2.0, as we call it, is a cyclical process that keeps value creation at the heart of everything the advisor does.

Step 1 – Define and Measure the Problem. As an exit planning consultant, when you start working with a new client, you need to take them through an intake process to define and measure the baseline value of their business, conduct a financial needs analysis, and articulate their value creation goals. Essentially, you have to determine what needs to happen for the business owner to exit successfully.

Step 2 – Analyze and Plan. After getting clarity on the business owner’s goals, in this step, you outline what they need to do to get from the current state to the company’s desired state before exit. This is the heart of the value creation part of the exit plan, but it also may include more tactical things designed to reduce risk to a buyer.

Step 3 – Implement the Plan. In this step, you put your value creation plan into action. You implement the planned value creation initiatives to close the value gap and any other needed steps to prepare the business and the business owner for a future exit. Depending on your plan, this step may last anywhere from 12-24 months.

Step 4 – Re-assess Goals and Progress. This is the stage when you review the progress made and revisit the plan’s goals to ensure that you’re still working toward the same objectives. Inevitably, things have changed since you established the original plan. The market has evolved, and the business owner’s needs have changed. This step helps you gauge what has changed and helps you modify your plan accordingly.

Step 5 – Exit. At some point, having achieved the value creation target, the business owner will be ready to off-ramp. The entrepreneur is ready to exit on their terms, and you, as an advisor, are ready to take them through the process of the actual exit itself.

The People Involved in Exit Planning

A successful exit plan requires a team. The company’s entire leadership team should be involved. And, generally, they lean on a team of advisors (attorney, CPA, wealth manager, consultant) to guide the process.

Depending on the company’s size, business owners may lean on 1-2 key advisors, or they may have a much larger team. For instance, an exit plan for a larger middle-market company may require the services of a tax attorney, an estate planning attorney, a benefits attorney, a business attorney, and even an employment law attorney for legal counsel. Specialists and other professionals on the advisory team could include ten or more different types of professionals.

Usually, but not always, one of those advisors is the lead consultant on the plan.

A multi-disciplined approach helps specialist advisors maintain a holistic view of the exit planning effort as they make recommendations relevant to their fields of expertise and execute them. When the individual team members perform well, the team as a whole performs well, and ultimately, the business owner achieves their desired exit goals.

What Is an Exit Planner?

Some advisors have pursued professional certification in this area through either the Exit Planning Institute (EPI) or the Business Enterprise Institute (BEI). Professional certification signifies that these professionals have received a recognized level of training in planning transitions. However, those programs do not cover value creation at length.

Entrepreneurs often ask whether they need a certified exit planner. The answer is that you need someone who has a deep understanding of value and value creation, has seen both internal and external transitions and understands what it takes to achieve a successful transition. Whether that someone has actual credentials is mainly irrelevant.

Similarly, advisors often ask whether they need professional certification. The answer: If you have been doing this type of value creation and transition work for years and feel confident in your expertise, then you probably don’t need to be certified. However, if you do not have experience in value creation and exit planning and want to build confidence, pursuing a professional credential can help you.

Value Scout offers a range of learning resources for you to develop your exit planning knowledge:

  • Our educational blog offers a range of free articles on value creation, exit planning, and succession every month
  • Our YouTube channel provides interviews with leading value creation consultants and regular answers to questions exit planners face in doing the work.
  • Our Guidon exit planning community offers courses on valuation, value creation, and exit strategy, as well as access to a network of seasoned consultants and advisors from whom you can learn.

Get Help from Value Scout

Value Scout is a value creation platform. Owners and advisors use it to structure and guide the exit planning process.

The platform provides your company (or your client) with an expert assessment of baseline value. It calculates the gap between what the business is worth today and what the business owner needs to be worth tomorrow for an exit to succeed. It provides recommendations on how to close the value gap. And, it facilitates collaboration between owners, their leadership teams, and their exit planning advisors in building and implementing their value creation and exit plans.

Where Do I Start?

If you’re a business owner thinking about exiting your business, schedule a demo and experience first-hand how Value Scout can help you. If you’re a management consultant, CPA, wealth manager, or exit planner, visit our partner portal to learn more about becoming a certified Value Scout partner.

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Makalyn Feaster

Makalyn Feaster

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