Exit Planning: Plan or Accident?

Owners and senior executives who are involved in the decision to sell and exit a company may have a good plan for the company but an important question is, “Does it satisfy the long term individual interests of those participating in the transaction?” When approached by a prospective buyer the focus quickly becomes the ability to do the deal and if not carefully considered long term interests are a low priority.

Long Term Need?
This is an exciting event and those close to the transaction become completely absorbed in it. The question that is not asked early in this process is will “it” – the check or stock shares – meet your post sale needs.

“Obviously a big number should be more than enough to do . . . . ?”

What I have found in a number of cases the “big” number was not big enough because the right planning had not been applied to the process to have a good idea what the value (after tax) from the sale should be to satisfy long term needs and support the current style of living or living and travel the owner or executive (and spouse) aspire to.

Strategic plans are rigorously developed for the company. That process or something similar to it should also be applied to retirement requirements after the sale. You cannot assume that you can just go get another job (if you are still young enough to have that expectation) or supplement your income with “consulting” revenue to backfill to meet your needs.

You should assume that what you have (proceeds from the sale plus existing assets) after the sale is all you will have to finance the rest of your life. What is your plan for the rest of your life and handling any post sale tax liability that will erode your gross proceeds?

Right Sizing
Your plan should include your significant other, as meeting expectations post sale will be very important. Making up a deficit after the sale is problematic. In one example the company owner had not anticipated that his “retirement” expenses would be 30% above what his assets would produce in good times, which resulted in liquidating assets and “right sizing” his living expenses consistent with his retirement plan. I am not sure what measures he has had to take to deal with reduced investment income as a result of the financial crisis.

Right sizing after the fact is always possible but avoidable if the right planning process is applied well before the prospect of a company sale emerges on the horizon. If you are the owner you may also consider the impact of this process on your senior team that will also face the same issues.

Investment Returns
In this new retirement age investments do not produce the attractive returns that they used to. Stocks have unpredictably lost significant value almost overnight thereby reducing dividends and more significantly principle. Lower risk monetary funds are more liquid but their interest rate returns have dropped to half (or less) of what they used to be. Does your plan account for these downside conditions? While these low returns may not remain indefinitely you need to plan for some level of staying power to see you through a bad period (3 – 5 years?)

Healthcare Cost
Health insurance prior to qualifying for Medicare can be quite high. Even healthy people in their 60’s, without any medical problems, may find themselves paying over $20K per year for basic coverage. Relying upon Medicare and Social Security to make up a portion of your retirement may be questionable if any level of means test is used to reduce payouts as the federal government tries to solve the debt crisis.

Length of Life
Another overlooked issue is outliving your plan. People are healthier today than they have ever been. Your long-term plan may need to survive for 25 years. It is very common to see mid-80 executives today that retired when they were in their early 60’s – or before. Fortunately for much of their retirement they enjoyed good investment returns which is something that may not be available to someone retiring at 65 today and yet will need a financial plan to last out to their 90’s.

Action Plan
To get a better handle on how to reinforce your Exit Planning process you need to start before someone walks into your company ready to present an offer. You need to work with someone who can bring a variety of elements to the table to help you to bring your long term needs inline with where the value of your company is heading. This may result in overhauling your company’s strategic plan to prepare it for a higher value deal, producing a value that will in the long run account for a large number of the variables and meet your long term objectives.

One company in the Northwest that addresses this broad look at Exit Planning for business owners and key executives is Washington BBIPeter Busacca, founder of BBI, reported in a recent meeting with me that his number one issue is working with business owners early enough to bring the long term issues into perspective as they manage their businesses so that a value plan can be developed that will meet their needs when the exit plan is executed.

Peter advises his clients to bring their team of advisors (spouse, business valuator, Insurance, estate attorney, business consultant, business broker) together and develop a plan that helps you understand where you are coming from, exactly where you want to get to, and provides a roadmap for how to get there. The result is focusing on adding value to the company and not just going day-to-day managing the crises.

It is not uncommon for a business owner to put this subject off to another day. I know I did! I was fortunate enough to have benefited from a plan that resulted in company performance and value that produced a good result. I was lucky!

What about you? If Clint Eastwood’s Dirty Harry character said, “Do you feel lucky?”


Don’t leave your long-term interests to just “luck.” There are too many variables in play to sit back and achieve your long-term plan by being lucky. Engage your team now to design a plan that will provide a high degree of certainty that you will get to where you want to get to – when you need to.



  1. […] Note:  You will find additional information on this subject at Exit Planning: Plan or Accident. […]

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