Continuation/Exit/Succession

Continuation/Exit/Succession – Where does one end and the next begin?

By John Chionchio – Financial Advisor, Northwestern Mutual

Does your business have an auto-pilot or do you have to fly it manually? Some business owners have built their business to operate without them if necessary, but most have not. Some business owners have built their business such that they can leave and continue to receive their income, either through ongoing distributions, a successful sale or both, but most have not. Some business owners have built their business with the bones of longevity with or without them, but most have not. How have you built your business?

Continuation planning is about ensuring the continued operation of your business regardless of what may happen to you or other key people. It’s about having a plan for who will do what and where the cash flow will come from to fund the plan. It’s about having Plan B figured out when all goes horribly wrong with Plan A. It’s about reducing the “corporate stress” that often accompanies the responsibility of owning a business.

Exit planning is about leaving your business when you want, how you want, on your terms. Do you want to retire from your business but still own it and receive the net income? Do you want to cash out at the end and disconnect from the responsibilities and emotional burden? Do you care who gets your business or is just anyone okay with you? Do you care if your business fails after you’re gone? Sometimes having the end in mind before you get there is wise. This is one of those times.

Succession planning is about building your business for longevity. In fact, many of the differences between the management of publicly-traded and privately-held businesses are based in having a long-term view of the business. It’s about building longevity into the business plan – by design. Timex has been in business since 1854. I’m pretty sure this didn’t happen by accident.

When you start a business, you work both in and on your business. As it grows and matures owners often morph, by necessity, into operations and management working mostly in the business. The job of working on the business grows too but is seldom urgent like daily operations and management.

Start-up, growth, maturity, transfer – this is the cycle of a private business. At what point in this chronology does it become inappropriate, or even irresponsible, to continue to neglect continuation planning, exit planning and succession planning? How many attempts at the American Dream have been shattered into nightmares late in the game?

Continuation, exit and succession planning are all related, intertwined. How may this planning, or lack of it, impact achieving your visions for your business, your life, your legacy? Only you can truly answer these questions, but will you? If you do answer them, will you translate those answers into a plan and will you act to implement the plan? Only then will any of it matter. Auto-pilot for business operations is achievable and commendable. Unfortunately, there is no auto-pilot for business ownership and certainly not for continuation, exit and succession planning.

 

Exit Planning - Start with the end in mind and get more, Way More!

By John Chionchio – Financial Advisor, Northwestern Mutual

One way or another, every business owner eventually exits their business. Some die in their desk chair. Some plan it down to the gnats you-know-what. But we all exit.

There may be fifty ways to leave your lover, but there are only a handful of ways to successfully leave your business. Most owners exit either via an inside transfer to key employees, an outside transfer to a third party or a transfer to family. Professionally designed exit planning for each of these is quite different, but generally speaking it is never simple or quick.

Whether you have a “sure” market to key employees or family, or a market must be made, it’s no trivial task to return the full value of a privately-held business to the personal balance sheets of its owners. And if you’re unsure of who will buy it, you must plan for multiple scenarios and the plot thickens.

Professionally designed exit plans typically involve risk management, investment, tax efficiency, lots of legal work, savvy negotiating and a head coach to strategically coordinate it and follow it through to fruition. And not just any deal team will due. This is a game where experience is king and newcomers and wannabes get crushed.

In the privately-held business world, the statistics of exit planning success, or should I say failure, are downright scary, and for good reason. Most business owners try to do it on their own with a local accountant and attorney and they fail. Even the ones that don’t fail completely usually leave large sums on the table, which is almost as tragic after years of risk, investment and hard work.

Some of the most successful and savvy owners of privately-held businesses are private equity groups. They buy, grow and sell private businesses for profit and they’re typically very good at it. Most can tell you fairly accurately at what point in the future they will sell a business, and at what price, before they buy it. They start with the end in mind and leave very little to chance.

Did you start with the end in mind when you started your business? Even if you did, what planning are you doing to make it happen? Do you know exactly how much you need from your business when you exit to live the retirement lifestyle you envision? Is the transferrable value of your business enough to provide that sum after tax? Do you know to whom you’ll transfer your business? How important is it to you to be able to exit when you want, how you want, on your terms? What is Plan B if something goes wrong with Plan A so you can still exit successfully, or are you just hoping Plan A goes perfectly?

So, what’s the point? The point is that exiting your business successfully is no small task and preparing for it won’t be quick. Good exit planning usually takes 5-7 years. The point is that professional exit planning takes a very specialized team of experienced professionals. There are no college courses for this stuff. The point is that selling your business will likely be the single largest financial transaction of your life and getting it right is important! The point is to start now, hire experienced professional help and get what you want and deserve from your business – on purpose – because chance is a rotten business partner and hope is an unreliable strategy.


Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) (life and disability insurance, annuities, and life insurance with long-term care benefits) and its subsidiaries. John Hunter Chionchio is an Insurance Agent of NM and a Registered Representative of Northwestern Mutual Investment Services, LLC (NMIS) (securities), a subsidiary of NM, broker-dealer, registered investment adviser and member FINRA and SIPC.

John Chionchio

Financial Representative

 

To learn more about Northwestern Mutual Investment Services, LLC and its financial representatives, visit: FINRA BrokerCheck