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Exit Planning for Business Owners1

Exit Planning for Business Owners1

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Published by: Brian Mazar, MBA, CBI on Oct 14, 2009
Copyright:Attribution Non-commercial


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Exit Planning for Business Owners
“An estimated $6 trillion of personal wealth will be transferred over the next 10 yearsconsisting primarily of privatively held or family owned businesses. Unfortunately mosttransfers will occur without prior planning”Business ownership transfer in a voluntary and non voluntary manner, described asproactive or reactive. The realities are that most business owners do not “formally” planfor ownership transfers; in fact, it’s estimated that 85% of business owners have no exitstrategy. The following are some reasons why.
Emotional Issues – Have not come to grips with “letting go”, plus trying to meet thevarying needs, through some level of consensus, amongst other stakeholders (i.e.family, employees, and co-owners).
One Sided Role – Too busy in the role of manager of the day-to-day operations in“growing the business”, leaving little time to address the dual role as an owner,and the eventual exit from the business.
Qualified Successor – Difficulty finding a qualified “internal” replacement to bothown and run the business, or simply don’t know how to groom one.
Taxes – Dealing with the fact that most every ownership transfer will be taxed insome way (gift, estate, income).
Lack of Advice – The business owner’s advisors (CPA, Attorney, etc.) are notaddressing this planning activity at a practical and emotional level it demands.
Changes – Maybe what many business owners, partners and stakeholders fear most – things will be different. Change is inevitable!Change/Transformation – be it personal or business – will always cause an ownershiptransfer. So whether it’s formalized or not, at some point in time, there will be an exit fromthe business. It’s a matter of choice, as to which of the three phases of change an ExitPlan is implemented.Phase I Exit Plan – Changes are AnticipatedBecause of the lead-time to plan, here’s where the business owner has the most transfer strategy options available. At this “formalized” Exit Planning Phase, the preferred choicesare ranked as follows:“Preferred” Transferee
RankFamily Member50%Employees30%Co-owner15%Outside Third Party5%100%As stated earlier however, 85% of business owners are likely not to initiate a formalizedPhase I Exit Plan in order to achieve these transferee objectives.

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