Exit Planning and the Multidisciplinary Approach

Exit Planning and the Multidisciplinary Approach
David Fearheller, CPA
December 29, 2009

Exit planning can be compared to the construction of a building, from the design phase using the services of an architect, to the grading of the land, to installation of plumbing stub-outs, to the electrical, to the laying the foundation, and so on.  The construction process utilizes the services of experts with specialized skills and normally takes a period of 2-5 years until the building is completed.

An effective exit plan requires elements of business valuation, financial analysis, tax and estate planning, insurance programs, employee benefits, and wealth management, among others.  Unfortunately, some professionals in accounting, law, or financial planning become enamored with or have a personal bias for a certain planning technique or product and push it aggressively. 

To continue with our construction analogy, imagine you want to build a custom home.  As you sit down with your architect you will normally not need to be concerned with what type of nail gun the carpenter will be using while framing the home. However, you will likely recognize the contribution made by the electrician, plumber, drywaller, painter, and other professionals. As with construction, it is easy to see that no single individual, accounting firm, law firm, or financial planning firm has the in-house expertise necessary to meet all the diverse needs related to exit planning.

Closely held and privately held businesses seldom, if ever, develop detailed exit plans.  The available research seems to point to several reasons for this, including:

• The perceived enormity and complexibility of the task itself,
• The difficulty in coming to grips with the many personal and business issues that need to be considered, and
• The expertise and extensive list of professional disciplines required.

Exit planning is not simply a transaction, but more of a process.  It is not just about buy-sell agreements, insurance funding requirements, whether to use a trust, the use of phantom stock, or many of the other tools professionals might use.  Importantly, this is a process that takes time, and should be started many years before the anticipated sale of a company.  Good exit planning can also have an enormous impact on the ultimate attractiveness of a company and the actual proceeds an owner reaps from a sale.

Because exit planning is often a once-in-a-lifetime activity, the process is not within the expertise of most business owners.  The process is usually fraught with emotional issues, often related to family matters or key employees, and thus requires a high level of professional integrity, legitimacy, and expertise within a particular field of study.

By using a multi-disciplinary team approach, with professionals experienced in exit planning, a business owner will create a blueprint or roadmap that will surface and address the critical issues, strategies and potential obstacles involved in the successful sale and exit of their business.