A number of business owners have commented to me that they don’t need an Exit Plan because they already have an estate plan. Others have said that they don’t need an Exit Plan because they are covered by their Buy-Sell Agreement. I admit that part of Exit Planning does deal with what happens if or when you die—called Contingency Planning or creating an Emergency Exit Plan. Contingency Planning deals with what happens to you and your business if you “get hit by a bus tomorrow.”
I also realize that all entrepreneurs are immortal! Still, once in a while disaster does happen. Last year I received two different calls from attorneys on behalf of the spouses of business owners who unexpectedly died. One was in his late forties and one was in his early fifties. Neither had an Emergency Exit Plan, so both spouses were sitting in the lawyer’s office wondering what to do next. They did not even know where the checkbook was. Though admittedly not a common situation, it was sad for all involved—and there were no easy answers.
What is not usually understood about business Exit Planning is that the largest part of the planning process deals with what happens if you don’t die. If you continue living, both your Buy-Sell Agreement and your Estate Plan are useless. You need an Exit Plan to deal with the eventuality of living a long and successful life.
At some point you may to want to start to enjoy the fruits of your years of hard work. You may need to convert some of the equity in your business to support your retirement needs. For most owners, your business is an illiquid asset. How will you access the cash that is locked in the business?
You also need to plan for the time when you may not able to effectively manage the business. Did you know that 40% of all people, including business owners, retire early for medical reasons? It can happen to any one of us. How would you cope with that kind of situation? Do you have a second-tier management team ready to fill your boots if something happens? Don’t delay Exit Planning because you don’t think you need to do it now. Life’s realities indicate that you do.