• Establish a Baseline: Succession planning is not one-size-fits-all. Determine if you have agreements in place that restrict your exit options (such as a buy-sell agreement), ensure all legal documents are up to date and assess performance. Consider challenges you may face in the next few years, such as necessary development to prepare succession candidates to lead in your absence, while you have sufficient time to address them and potentially improve your outlook.
• Know Your Business’ Value: A third-party valuation of your business provides a clear picture of its market value. Conduct this step as early as possible to identify opportunities to improve your valuation. For example, if you learn your business would be more attractive to a buyer if you diversify your customer base or invest in a new revenue stream, you need several years to implement changes, realize returns and record sufficient financials to demonstrate the value.
• Confirm Your Objectives: With a valuation in hand, your advisors can guide the complex process to determine realistic post-business needs. Beyond what you need to be comfortable in retirement financially, define goals for the wealth you leave your family or charity. Think through what you want for your business when you no longer are involved.
• Evaluate Your Exit Options: Financial planning is the cornerstone of the succession planning process. Decisions about how to manage your estate will inform the best way to structure a sale to achieve your goals for yourself, your family and your legacy. With the estate tax exemption decreasing significantly at the end of 2025, it is important to develop a plan now.

Common Exit Strategies

• Third-party sale: Your advisors and banker can assist in structuring a third-party sale agreement that maximizes results. While selling a company on the open market may bring the highest price, consider how you will feel seeing your business in new hands.
• Employee Stock Ownership Plan (ESOP): Employees “buy” the company through participation in a qualified plan. ESOPs have high emotional value and reward a loyal team. ESOPs also have unique tax incentives but may result in a lower price than an outright sale, so it is essential to build a financial plan that capitalizes on tax and other attendant benefits.
• Internal transfer: Sales to family or management often cause the least disruption for customers and can be attractive in a downturn when buyer access to capital is restricted. You may need to hold a note in the capital structure if your management team cannot fund the purchase in full. If your family is involved, determine if you can afford to gift shares to them as part of the transition.
• Estate planning transfers: Business assets can be gifted or sold to a trust to minimize tax liability.

Your exit plan will be as unique as your business. Contact your advisor to discuss the solution that is best for you.