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First Things First: Prioritize Your Objectives

Posted on 10/25/16

“You’ve got to be very careful if you don’t know where you’re going, because you might not get there.” — Yogi Berra

It is not always easy to interpret Yogi. In this case, perhaps he is advising you to figure out just where you are headed in your business. As you near the time when you will leave behind the daily worries and stresses of business ownership, have you defined your successful exit? Do you know where “there” is, much less how to get there? Unless you set and prioritize your exit goals or objectives, you may have too many, or they might conflict, but in either case you may not make much headway.

The clearest example of a failure to set objectives may be Bill Wilson, a business owner who recently told us that he wanted:

  • To leave his business within three years (although he was ready to leave right away)
  • Financial security, defined as a seamless continuation of his current lifestyle
  • To transfer the business to his management team

A quick review of Bill’s personal financial statement, however, revealed that most of the income required to maintain his lifestyle would have to come from the business. Unfortunately, his business wasn’t large enough to attract a cash buyer. And, since Bill had done no Exit Planning, his employees had no funds with which to purchase his ownership interest. A long term installment note seemed to be the only answer — a risk Bill was unwilling to take.

Contrast this unpalatable solution with Bill’s objectives — objectives which could have been achieved had he taken the time (well before he wanted to leave the business) to establish and to prioritize his exit objectives.  If, for example, an owner’s need for financial security prevails, selling a business to a third party for cash may be the best and quickest exit path.

If, however, attracting a qualified third party is unlikely or undesirable, an owner may need more time to devise and to implement a transfer to one or more insiders (children or employees) that provides the owner adequate cash.

On the other hand, if an owner’s desire to transfer the business to a specific person or group trumps his or her need for financial security, and his/her deadline for departure draws near, financial security in the form of “up-front” cash must take a backseat.

As you can see, owners must consider—simultaneously—the three primary exit goals (listed below). Ask yourself which is your most important exit objective and rank your answers from 1 (most important) to 3 (least important).

Financial security
1          2          3

Transferring the business to the person of my choice (may include key employees, co-owner or child)
1          2          3

Leaving the business when I want (could be immediately or never)
1          2          3

Prioritizing your objectives will help you choose your overall path and design your Exit Plan. For example, if you want out—soon and with cash—but your business cannot be sold today, do you wait until market conditions improve or sell now to your employees? While prioritizing your objectives is not easy, doing so gives you a framework for decision making.

Start with the choices and priorities in the exercise above, but if you have any difficulty we can ask you some additional questions that will help you make your selections.  When combined with an overview of some critical facts about you and your business, the Exit Planning solutions begin to crystalize.  While we don’t have a ready-made Exit Planning package ready for you, we do have the background and the Exit Planning process that we believe will shine a spotlight on the Exit Planning solutions that are best for you.  We’d like to sit down to talk with you about it sooner rather than later.  Gathering your Exit Planning resources today can help you confirm your path to the future.

The information contained in this article is general in nature and is not legal, tax or financial advice. For information regarding your particular situation, contact an attorney or a tax or financial advisor. The information in this newsletter is provided with the understanding that it does not render legal, accounting, tax or financial advice. In specific cases, clients should consult their legal, accounting, tax or financial advisor. This article is not intended to give advice or to represent our firm as being qualified to give advice in all areas of professional services. Exit Planning is a discipline that typically requires the collaboration of multiple professional advisors. To the extent that our firm does not have the expertise required on a particular matter, we will always work closely with you to help you gain access to the resources and professional advice that you need.

This is an opt-in newsletter published by Business Enterprise Institute, Inc., and presented to you by our firm.  We appreciate your interest.

Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity.

About the Author

Robert J. Lane, CPA

Kerkering, Barberio & Co.
1990 Main Street, Suite 801
Sarasota, FL  34236
(941) 365-4617
rlane@kbgrp.com

Mr. Lane serves as Managing Shareholder of Kerkering Barberio. His practice areas include Audit, Advisory and AssuranceEnterprise Risk Management, Nonprofit Organization Services and Succession (Exit) Planning.  As an Audit shareholder, he is responsible for audits and reviews of entities in a variety of industries, including large nonprofit organizations, general contractors and manufacturers.  He also leads the firm’s Succession (Exit) Planning practice, assisting business owners as they navigate through one of their most important financial decisions.

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