Personal Aspects of Exit Planning

Exit planning is a very personal, usually once-in-a-lifetime event for business owners. Having an exit plan means providing the business owner a picture of their future life after leaving the companies they built. This is a huge milestone because giving up their companies impacts all aspects of their lives.

There are many aspects to exit planning: financial, legal, logistical, and the often undervalued emotional part of the process. The truth is, if they haven’t thought about these factors yet, then they might not be emotionally ready for an exit.

After someone has spent years growing your business, deciding to leave it packs an emotional punch. At such a critical time, it’s wise for that business owner to seek advice from a skilled, experienced exit planner who can answer the “big questions” and has the flexibility to work with the owner to get what they want out of the process. They can bring the deal to a win-win conclusion for everyone involved. Lack of time to plan their exit from the company can immediately impact their company’s value.

Encourage the entrepreneurs to think about what their futures should look like after leaving the companies they built. They should also think about how those decisions will affect them personally. What are their plans after the exit? Are they looking forward to a well-deserved retirement and finally having time to travel and pursue their hobbies?

Value Scout’s exit planning advisors ensure that exit plans run smoothly and that entrepreneurs achieve their post-exit goals.

The dynamic and associated changes through the exit planning process determine how owners reduce their business risks. Depending on their goals, owners/entrepreneurs may want to take money out of the company first and step back from day-to-day operations before retiring for good. It’s a proven way to secure their future family assets to a certain extent. Succession decisions should, ultimately, remain compatible with a business owner’s personal goals.

Let’s talk about the more personal aspects of exit planning. These insights are something you can’t get from a webinar or class. They come from a long history of successful exits and happy entrepreneurs.

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Personal Aspects that Affect Exit Planning

An entrepreneur naturally wants to control how, when, and why they leave the business. An entrepreneur willing to go does not just want to react to external circumstances; they want to act. The prerequisite for this is that they must develop a well-thought-out exit strategy. Only someone who works to enable their company to function independently can depart without negatively affecting its performance. This effort includes bringing in a management team that can make the right decisions. Only then can the entrepreneur focus on the personal impact of their exit.

Personal Financial Readiness

The owner’s financial readiness factors are significant in making a successful exit. Is the business their primary source of income? Are there any other post-exit sources of income? Dividends? Residual business income? Do they receive interest in investments? How sustainable is this income?

Has the owner prepared a budget for the years following retirement? If so, then bringing it up to date with the latest figures is the next step. If not, it’s a good idea to compare expenses and income now.

Expenses are justified against income if fixed costs (e.g., housing, insurance premiums, taxes, household expenses, health insurance) are set against fixed, secure income from a pension fund and any third-party asset. The entrepreneur can use the income from those assets and part of the capital to make their retirement dreams come true and, if necessary, cushion an emergency.

Get an initial overview of your client’s financial situation. List all relevant items:

  • Bank balances and securities
  • Real estate
  • Valuables that can be sold, if necessary
  • Pension fund assets
  • Third-party assets
  • Payouts from life insurance policies
  • Inheritances and gifts that you can count on.

Also, compile all debts: mortgages, overdue taxes, credit card debt, and other loans. This overview will help when it comes to closing future income gaps.

The decisions business owners make now will affect the next 20 or even 30 years. A lot can change in that time:

  • It is uncertain whether your client’s retirement savings will keep pace with inflation in the long term. On the other hand, their consumer spending is more likely to decline in later years. If you ignore this reduction in your calculation, you create a counterweight to the creeping devaluation of pensions.
  • If capital consumption has to cover a large part of your client’s livelihood, they will be dependent on capital returns earned by investments. A stock market crash can cause a drastic capital loss. In any case, a broad distribution of risk is essential.
  • Severe illness and healthcare expenses incur cause high costs and may require your client to change their entire lifestyle. It is reassuring to have a reserve for such emergencies.
  • What about death? Although the topic is discomfiting, the truth is it must be considered. For example, can your client’s spouse continue to live in familiar surroundings with a reduced income? How will the cohabiting partner make ends meet? Obtain clarity with separate budgets for those who depend on the business owner’s post-exit income.

Personal Financial Plan Post-Retirement

The one sure way for entrepreneurs to lead a successful life after retirement is to consume wealth in a targeted manner.

The sooner an entrepreneur distances himself emotionally from the company, the better it is for the entire handover process. It is, therefore, beneficial if they have other interests that give them energy and strength. Those interests may differ wildly from one individual to the next. What are your client’s goals after leaving the business? A lifestyle change? Travel? A new home? Funds for long-term care? Funds to start a new venture?

After handing over the company, planned goals for one’s life usually result in motivation, joy, and meaning. The focus is less on those goals’ metrics or deadlines, so a personal financial plan for those retirement years becomes necessary.

After retirement, assets are often separated into consumption and growth categories:

  • The consumption category includes the sum sufficient to fund your client’s necessary, expected expenses for the first 10 to 15 years after exiting the business. This guaranteed funding requires low-risk investments. They will probably leave the money alone for the first three to five years and maintain a strong reserve from which they can withdraw at any time.
  • Growth assets come into play when the consumption portion has been depleted. The planned delay of 10 to 15 years before accessing this wealth allows riskier investments to earn the value that should cover the income gap for the rest of your client’s life.

Don’t let your client deceive themselves about their willingness to take risks. Many people attach great importance to security, especially in old age. They may, for example, only invest half of their wealth in riskier growth investments such as equity funds while investing the other half in a security-oriented manner such as bonds.

You know from wealth planning how much capital is necessary to cover an income gap after retirement. Now it is essential to help your client invest their assets so that nothing stands in the way of a carefree life.

Inheritance for Heirs

Do you want to leave money for your heirs? If so, what do you want the inheritance to look like? What legacy do you want to continue or start for your family? These are some of the questions entrepreneurs most likely have to address while planning their post-exit finances.

This conversation discusses legacy issues during the entrepreneur’s lifetime versus legacy issues should they die prematurely. Both scenarios should be explored for the peace of mind of both the business owner and their family/heirs. No one likes talking about their mortality, so be delicate when discussing these issues.

Make a Will

What your client has in their will is their own business. Terms can be general or specifically itemized to ensure that certain heirs receive certain items or monetary amounts. Does your client fear that their heirs will one day fight over the yacht in San Francisco Bay? They can determine that the boat will be sold in the will, and the proceeds are distributed among the heirs.

One must adhere to the formal requirements in all such arrangements. There are two ways to make one’s own will:

  • Holographic will: For this to be valid, one must write it entirely by hand, date it, and sign it. Failure to do this means the will can later be challenged and declared invalid.
  • Public will: Take the text–or just notes–to a notary or attorney (depending on the canton, the notary’s name may be different). The advocate draws up the will, which the client reads through and signs in front of the notary/attorney. The notary/attorney witnesses the signature and deposits the choice with the competent authority.

To write a legal will, one must be a legal, competent adult, aware of the effects of what is written. If your client fears that someone among their heirs could question their judgment, a public will is recommended because the notary/attorney and witnesses must attest to your judgment.

Philanthropic Goals

Sticking to a schedule when planning one’s exit is a huge advantage. A schedule helps your client think of everything essential and shows which measures need to be initiated and when. A business owner’s legacy may not stop with their family. There is a fair chance a business owner might consider philanthropic goals and what will fund them. The desire to share one’s wealth in the service of society is certainly not a new phenomenon. Your client’s exit affords them the perfect opportunity to pursue their philanthropic goals. A financial post-retirement plan can help them set aside a fund to fund those activities.


Every company succession is different and needs time and the courage to deal honestly with existential and prominent, often taboo topics such as aging, death, and accepting support. A structure for the soft factors of the succession process and analysis tools bring security.

Every succession is different, yet each is a multi-step process where uncertainties and fears may play a role. This must be taken into account and dealt with. It is essential to acknowledge the emotional impact, steer it effectively, and use it constructively.

Author Summary:
Matt Lawver

Matt Lawver

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