Coordinating Your Succession and Exit Blueprint

We weren't surprised by our meeting with Art. We had seen it many times before. Art and his son had founded and built a very successful retail business. They had operations across the country which were consistently producing significant year-to-year net cash flow. Art had decided recently that he was ready to sell the company and that he wanted to get this done right away.

However, as we began to visit, it was obvious Art had some roadblocks in his path that would take some time to overcome. He and his son clearly had significant differences about the future which Art was finding at this late date were becoming more and more difficult to resolve.

We have identified the top 12 principal reasons we've seen which have caused business owner transitions and exits to be unsuccessful. Each of these reasons impacts the company's ongoing annual profitability as well as an owner's transition and future exit results. This article addresses the first of these 12 reasons:

• Reason #1. Unclear and Conflicting Owner Objectives. Your financial, personal, transition and exit objectives are not determined or conflict with each other (or with the objectives of your partners, key employees, spouse or other family members).

The first step listed in a famous rabbit stew recipe is "Catch rabbit". Likewise, as you and your advisors begin the Transition Growth and Exit Planning process, don't overlook the obvious. Every business owner must begin the Transition Growth and Exit Planning process by reviewing his or her primary personal, financial and transition objectives. Once established, your objectives become the final destination towards which your Transition Growth Plan needs to advance.

The Transition Growth and Exit Planning process, whether you intend to sell your business to an outside party or to transfer it internally to a family member or an employee, cannot proceed until your objectives are thoroughly analyzed, understood and internally consistent.

In the Transition Growth and Exit Planning process, your Transition Growth Plan is dependant on coordinating the following six prime objectives. These in effect represent different forks in the road. While a good Transition Growth Plan includes fall back plans, it is critical that you and your advisors begin by having a keen understanding of the following six prime exit objectives:

1. Who - Who do I want to transfer my business and duties to?
2. What - What part of the business do I want to transfer or keep?
3. Where - Where do I want to reside after my exit?
4. When - When do I want to exit from active duty and/or ownership?
5. Why - Why do I want to exit?
6. How Much - How much net cash-in-pocket do I need or want upon my exit?

Transition Growth and Exit Planning needs to address the interaction of business dynamics, family dynamics and other financial dynamics. As you begin to consider your personal, financial and exit objectives, you should schedule one or more family retreats or conferences where you (and your lead Transition Growth Advisor, as appropriate) can discuss, evaluate and consider your objectives in light of the wishes and expectations of your loved ones.

This review of your objectives needs to be thorough, specific and forthright. A successful transition and exit will often involve input from your management and a number of advisors. If you, your management or your advisors don't understand the mission, they won't be working in a coordinated effort. If the team quarterback isn't clear if the play is a run to the left or a pass to the right, the likelihood of successfully scoring is remote.

This review of your objectives is the time to consider what you want to do post-exit and to address the type of legacy you want to leave to your family, your business and your community.

Our Next Step Transition Growth and Exit Planning program has been specifically designed by us to address and overcome each of the 12 principal reasons for failure. This program consists of 12 critical building blocks. We are using this program around the country to help business owners design and implement their Transition Growth Plans for accomplishing their transitions and exits
successfully.

Andrew D. Horowitz, CPhD, is a wealth advisor and president of The Estate Management Group. The firm's website is www.EMGPlanning.com.

Nicholas K. Niemann, Esq., is a transition and exit planning advisor and a partner in the law firm of McGrath North. The firm's website is www.McGrathNorth.com.