How Will You Tell Your Exit Story



Pictured left to right: Thomas M. Cooney, partner; Dean R. Johns, principal; Crystal L. Faulkner, partner; Charles R. Stevens II, partner; and John D. Dovich, president.

Photo by Liam O'Connell

It’s inevitable. Someday you will, one way or another, leave your business. How will you tell your exit story – with pride and prosperity or with disappointment and unnecessary regret? The answer depends on your willingness and ability to take an active role and plan appropriately for the most important financial event of your life – transitioning out of your business on your own terms. “Many business owners know they need to begin the exit planning process and even have it on their ‘to-do’ list,” says John Dovich, founder and president of John D. Dovich & Associates, LLC. “Unfortunately, because the process can be difficult and uncomfortable it sometimes doesn’t happen until an unexpected event like death or disability occurs.” 

“An exit plan is a holistic approach to a business succession strategy,” says Tom Cooney, Partner and Co-Founder of Cooney Faulkner & Stevens, LLC. “A well-designed exit plan allows owners to receive maximum value for their life’s work, limit their tax burden and remain in control of the entire process.” 

Preparing and transferring a company for its highest value takes time – on average, between five and seven years. That’s where Dovich & Associates and Cooney Faulkner & Stevens come in. The two firms often work together to help guide business owners through the process. According to Charles Stevens, partner and co-Founder of Cooney Faulkner & Stevens, LLC, those five to seven years will be spent executing a series of strategic steps to develop a comprehensive plan. “The more time you invest in the exit planning process, the greater business value you create,” he explains. “Putting together an exit plan also takes a team of experts,” adds Crystal Faulkner, partner and co-founder of Cooney Faulkner & Stevens, LLC. “It’s important for business owners to have all of their advisors and advocates on the same page in order to develop the most successful exit strategy possible.” 

So where do you start? Dovich & Associates and Cooney Faulkner & Stevens have identified a step-by-step process business owners can consider when planning their exit:

 

What do you have? 

Assess the value of your business and non-business assets. “Since the bulk of your net worth is likely tied up in the business itself, it’s important to get an accurate valuation of the business,” says Stevens. “You then can develop effective strategies to foster growth and increase the after-tax value while tracking your progress similar to how you measure the performance of your
other investments.”

 

What do you want? 

Determine your personal and business financial objectives. “Review your short and long-term needs,” says Dean Johns, principal at Dovich & Associates. “Confirm that you’ll be able to pay for the lifestyle you desire including income in retirement and making sure you’ll be able to pay for things like long-term care down the road.” 

Once you know the current value of your business and have identified how much you will need after-tax proceeds from the transfer of your company, you will know if any gaps exist between what your business is worth today and what you need to achieve financial freedom explains Faulkner.

 

Protect, Grow and Prepare. 

To narrow or eliminate any potential gaps between what you have and what you want you can design specific value drivers within your business to achieve your objectives. Identifying how to grow the most profitable parts of your business will make it more attractive to buyers and at the same time protect what you have.

“The value of your business isn’t just tied up in brick, mortar and inventory,” Cooney says. “Depending on the type of business, there might be patent or trademark issues that can bring top dollar in a sale.” 

Employees are also valuable assets and losing some could potentially hurt the bottom line. Dovich and Cooney both recommend talking to your advisors about “stay bonuses” that can encourage key personnel to stay with the business which can be a useful tool to ensure a smooth transition.

 

Choose a successor. 

There are many options when it comes to choosing a successor. You can sell to insiders, such as family members; to a key management employee; or develop an employee stock ownership plan (ESOP). Selling to an outside third party is also an option for some companies. This may include a competitor, a strategic buyer, private equity, etc.

Faulkner explains that if you’re selling to an insider or an heir, there’s a good chance they won’t have the cash to finance the transaction. In these situations, deferred compensation plans and consulting agreements can be useful tools to provide liquidity to the seller while providing tax advantages to the buyer.

“If your plan is to leave the business to your heirs, you can implement several estate and gift tax options to avoid any nasty surprises once the transfer is complete,” advises Faulkner. “The goal is to minimize the taxman’s share so that you preserve more wealth for you and your family as the transition takes place.”

 

Ensure Business Continuity. 

To ensure the stability of your business, it’s important to implement plans that safeguard financial resources, retain employees and customers. Make sure any necessary documents, contracts and policies and procedures are established and up to date. These measures help increase the overall value of your organization says Stevens, whether you plan to sell to an inside or outside party.

The ultimate goal of exiting your business is to secure financial independence for you and your family. Working collaboratively with your team of trusted advisors will help you ascertain what you want, what you have and how to fill potential gaps. As a result, you will secure a skillfully devised exit strategy that gives you control of your future, peace of mind and freedom, solidifies your legacy, minimizes your taxes, and maximizes the value of your
life’s work.

Cooney, Faulkner & Stevens, LLC is located at 3536 Edwards Road, Cincinnati, OH 45208. You can reach them at 513.768.6796 or visit their website at www.cfscpa.com

John D. Dovich & Associates, LLC is located at 625 Eden Park Drive, Suite 310, Cincinnati, OH 45202. You can reach them at 513.579.9400 or visit their website at www.jdovich.com. 

John D. Dovich is a Registered Representative of Lion Street Financial, LLC (LSF). Securities offered through Lion Street Financial, LLC (LSF), Member FINRA & SIPC. Investment Advisory Services offered through John D. Dovich & Associates, LLC. LSF is not affiliated with John D. Dovich & Associates, LLC.