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Exit Planning: First 3 Things to Do Personally to Prepare for a Future Exit.

Today, we’re going to highlight why your personal readiness is so important to a successful exit. As a bonus, we’ll see why, if you’re the buyer, you need to be asking these questions of a potential seller to gauge the likelihood of your successful acquisition.


Of all the personal readiness initiatives that you can undertake, we wanted to focus on the first three initiatives today. There are several more that come into play, but these first three are foundational to everything else that follows…and we recommend these in this order:

  1. Written Personal Plan.

  2. Personal Financial Plan.

  3. Estate and Tax Plan.


Written Personal Plan.

Before we even consider accepting new clients, we always like to ask them what is now known as the three-year question, or the Dan Sullivan Question™, so named after the founder of Strategic Coach, and the originator of this question:


If we were having this conversation three years from today, looking back, what has to have happened for you to be very happy with your progress personally and professionally?”


This time frame can certainly be adjusted to be one year after your business exit, or a time frame that is relevant to you. But ask yourself, what kinds of things do you want to be true about yourself - physically, spiritually, relationally, mentally…? What things do you want to be true about your family, your finances, your investment of time, or other areas of life? After you do this, we strongly encourage you to share this with your spouse or other close friend. This will help them see your vision, one that almost certainly affects them.


Personal Financial Plan.

then you need to get abundant clarity on your personal financial plan. How much money will you need to live on? How much do you plan to spend for travel? Future investments? Where will the cash come from? In what order will you pull funds from which accounts, and why? Are your investments taking on appropriate but not excessive risk, given your stated objectives and time frames? We encourage you to engage with your financial planner on these, and if you do not have one, we are happy to have an initial discovery conversation to see if we are a good fit to serve you here. Side note: don't be surprised when we ask you the three-year question above.


Estate and tax plan

at this point, and preferably after you have a good handle on your personal plan and your financial plan, you are now ready to look at your estate plan and tax plan. After the sale of your business, will you be subject to estate tax? Where do you want your wealth to go after you pass away? Kids? Charity? Your alma mater? Do you want to help future generations start new businesses? Do you want it to just go to the tax man?


Very few people actively sign up to add to that last category, but by their inaction, they do exactly that. So this leads us to tax planning, and a few related questions:

  • Would you be wise to begin Roth conversions now or in the future?

  • At age 70 1/2, should you be taking advantage of qualified charitable distributions (QCDs)?

  • Should you be funding a donor advised fund (DAF)?

  • Should you consider forming a Family Foundation?

  • Are you aware of / do you have a working knowledge of the different types of trusts, and do you have the appropriate one(s) in place now?

  • Do you know your potential tax liability at exit? At death?


It's important to note that, even if you are not wealthy enough to worry about estate tax, you still need to do estate planning. However, most of our clients who engage seriously in the process of Exit Planning are going to be affected by estate tax, regardless of whether the TCJA or “Trump tax cuts” due indeed expire, lowering the estate tax exemption.


Final thoughts

We trust that you can see from a seller's perspective why a written personal plan, an organized financial plan, and a well thought out estate and tax plan are essential building blocks of a successful exit. It's also worth noting that since roughly 80% of businesses that go to market do not sell, the main reason for this high failure rate is the owner’s cold feet. If you are a potential buyer, and you are able to discern that these steps have not been taken on the sellers side, you need to be very cautious about moving forward. There is a high likelihood that the closer you get to closing on the business, the more the prospective seller realizes all of the preparation that they have not done. When this realization hits them, they are likely to do what most sellers do at this point: walk. So while we don’t expect a seller to share with you the details of their 3 year picture or their personal financial plan or estate plan, you can learn enough to know whether such plans exist and whether they’ve been well examined. This should inform how much time and energy you invest in such a deal.


We hope this has been helpful to you, and if you know of others that would benefit from reading this or other articles relating to Exit Planning, we invite you to share these with them.


With that, we thank you, and we will see you tomorrow!

Any opinions are those of The Weddle Team and not necessarily those of Raymond James Financial Services, Inc., or of Raymond James. The information contained in this presentation does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.


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