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The Pros and Cons of Using an Exit Planner

by | May 29, 2024 | Business Law

Exit planning is a process for business owners considering a sale or a succession plan for their business. An exit planner specializes in helping business owners develop and implement a strategic plan to exit their business seamlessly. The succession plan typically includes the sale of the company, transfer to heirs, transfer to employees, or the creation of a strong management team so that the owner does not have to be involved in the day-to-day decisions. The typical exit planner is a professional who has undertaken special training or has developed expertise based on years of experience. Let’s explore the pros and cons of using an exit planner.

Pros of Using an Exit Planner

  • Focus. Many professional advisors can advise on various aspects of exit planning. Most of these professionals focus on different aspects of succession planning. If you engage a professional specializing in succession planning, you will have someone who is laser-focused and has experience in many industries on your side. Also, a professional focusing on succession planning will typically act as the quarterback and consult with other professionals as needed throughout the process.
  • Expertise and Experience. The exit planner brings a wealth of expertise and experience to the process. They are knowledgeable about various exit strategies, valuation methods, tax implications, and legal requirements. Their expertise helps ensure that all aspects of the exit are carefully considered, which can significantly enhance the outcome for the owner.
  • Comprehensive Exit Strategy. An exit planner develops a comprehensive exit strategy designed to address the owner’s needs, goals, and timeline. The strategy typically includes succession planning, business valuation, financial planning, project management, organization, and analysis of tax implications.
  • Objective Perspective. Owners have an emotional attachment to their business. An exit planner provides an outside perspective.
  • Enhanced Business Value. Exit planners work to increase the value of the business. They identify areas for improvement, such as operational inefficiencies, financial performance, and marketing.
  • Time and Resource Management. The exit planning process can be time-consuming and complex. An exit planner manages the process, allowing the business owner to focus on running the business.
  • Risk Management. Exit planners help identify and manage risks, ensure compliance with legal requirements, and plan for contingencies.
  • Post Sale Planning. The exit planner also prepares the owner for life after the exit. This helps mitigate the Seller’s remorse, and hopefully, the owner will have developed a strategy for the owner’s next phase in life.

Cons of Using an Exit Planner

  • Cost. One of the main drawbacks of using an exit planner is the cost. Exit planners typically charge fees for their services, which can be substantial depending on the complexity of the exit plan, the level of service required, and the size of the business. These costs may include hourly rates, flat fees, or a percentage of the business sale price. Presumably, the right exit planner should add enough value to cover their fees. While there is no clear rule of thumb, obviously, some companies are too small to engage an exit planner. The analysis of whether it makes sense must be done on a case-by-case basis.
  • Potential for Conflicts of Interest. Exit planners may have pre-existing relationships with potential buyers, financial institutions, or other third parties involved in the exit process. The owner should ask that all conflicts of interest be disclosed in writing.
  • Loss of Control/Confidentiality. Engaging an exit planner requires the business owner to delegate some control and potentially provides the exit planner access to the Company’s confidential information.

Finally, engaging an exit planner requires careful consideration. If the right exit planner is selected, the result should be an increase in the value of the Company. In any event, business owners should carefully consider the pros and cons when deciding whether to engage an exit planner.

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