Essential Guide to Exit Planning

A key attribute of every good leader is having a solid plan for his/her exit. Industry experts suggest having an exit plan in place at least three years before your exit. However, Jay Rammes, CPA and tax director at Barnes Dennig (barnesdennig.com), said three years is the accelerated track. “Successful exits have usually been in process for five to 10 years,” Rammes said.”The sooner you plan, the more control you have over the process.”

Build an exit team

One of the most important facets of a strong exit strategy is building an exit team. Nathan McKean, CEO of Breckenridge Material Company (breckenridgematerial.com), said building a complete senior management team was one of the first things he did after taking over.

“After seeing three generations of struggling successions, I wanted to build a robust management team, and I wanted to accomplish it early,” McKean said.

That team should include leadership from every area of the company and some outside individuals, such as CPAs and financial and legal advisors specific to the construction industry. If possible, your successor should be on the exit team, too. According to Ken Van Bree, a partner in charge at RubinBrown’s Construction Services Group (rubinbrown.com), a successful method for handling an exit is to build a strong team, and then let your team handle the strategy. “The owner’s main responsibility is to make sure his/her expectations are clear. Then, step aside and let the team put the plan together,” Van Bree said. A few more tips for building your exit team include:

• Don’t be afraid to spend a little money on a consultant who specializes in exit planning.
• Be mindful of who you include on the exit team—look for employees who are focused on the company’s success.
• Keep the size of your team relatively small.

Know your company’s worth

At the basis of all well-planned exit strategies is this: lean operation will always pay off. By maintaining a conservative balance sheet while you in charge of the business, you are setting yourself up for an easier exit. Before the exit happens, though, you should be well aware of just how much your business is worth. Your goal should be to build a company that others will see the value in acquiring, not getting to a specific monetary amount. Rammes had additional tips for assessing the financial status of your company: \

• Find ways to maximize the profitability of the company.
• Trim overhead and minimize long-term equipment investments to preserve equity.
• Be careful of contracts to which you obligate your company.
• Trim down debt by selling equipment.
• Preserve working capital and equity.
• Be mindful of tax implications.

Discuss the Exit with Employees

It is important that you communicate effectively with your employees throughout the process. Meet with them regularly to make sure they understand the changes taking place and how they will be affected. Avoid surprises with your employees and be honest. Leadership should be in full support of the transition. Van Bree said the more your employees understand how they will provide value under new leadership, the better. “Show excitement about a new transition,” Van Bree said. “Your employees need to know you have full confidence in your successor.”

Pay Attention to Industry Trends

Current trends, such as the labor skill shortage, should be involved in both the planning and action phases of an exit. Your people are your greatest asset. Without them, the business doesn’t succeed. With the current skill shortage, employees with the necessary knowledge and experience are in high demand. Handling an exit with precision and care is paramount to retaining your valuable employees.

Exit Planning Is Not an Easy Task

“Every company, every management team, every owner is different,” said Chris Coleman, tax partner at RubinBrown.”There is no mail-order box for an exit strategy. Focus on customizing a plan to your business.”

For McKean, Breckenridge Material has been in his family for more than 90 years and four generations. “I don’t have a preconceived notion that this business must continue in our family after I leave, but it is important to me that the business continues to succeed long after I am out of the picture,” McKean said.

An exit may not even be in sight for you, but now is the time to start planning. Have a strategy in place so your employees know how to keep your business running—with or without you.

“It’s easy for all of us to be consumed with day-to-day activities of our careers, and that is compounded when you are a business owner,” Rammes said. “Exercise discipline and say this is what I want out of my life, and this is how I plan to achieve it.”