The Business Owner Exit–Succession Process

By Jeremy Wallace and Andrew Hart

The road from that first spark of a creative idea to the managing of a full-fledged business is not for the faint of heart. And because starting and running a business is all-encompassing, it’s not likely you spend your few spare moments thinking about how and when you’ll transition out of your ownership role in the future. But after the years of the blood, sweat, and tears that go into building a successful and sustainable business, all business owners must face decisions surrounding the final transition of their company. 

Since every single business owner will one day transition their business at some point, advanced planning is critical to achieve their aspirations—both for their business and family. Unfortunately, less than 25% of business owners have established a formal written business succession plan. (1)

This failure to plan is often due to two reasons. First, business owners are much better working in their business than on their business—as they should be. Second, the process of creating a proper succession plan can be difficult and overwhelming. This is where professionals can greatly assist owners by illustrating and implementing a clear and concise process from beginning to end. 

Here’s a glance at what our team will cover in our stage-by-stage process. 

Stage One: Initial Discovery Meeting

Defining exit objectives and goals:

  • What is your desired departure date?
  • What are your income/financial security requirements?
  • What exit routes are open to you?

Stage Two: Information Gathering

Personal financial analysis: 

  • Review existing financial, estate, and business plans.
  • Determine gaps in each of these plans, if any.
  • Discuss wants and needs. 

Stage Three: Determination Of Business Value

Current valuation and the development of value drivers:

  • Analyze each exit route to determine how to protect and increase business value and understand the tax implications of ownership transfer through sale, gift, and estate. 
  • Obtain a formal valuation performed by an independent third party to set a fair price for company stock based on a consistent methodology for valuing the stock in the future. Include a reasonable discount for lack of marketability and minority interest, if applicable. This provides a benchmark for buy–sell agreements and executive compensation, equity-based plans, etc.

Stage Four: Choosing An Exit/Transition Route

  • Sell to an outside third party (financial or strategic buyer).
  • Sell to employees using an Employee Stock Ownership Plan (ESOP)*.
  • Sell the business to one or more key employees (management buyout).
  • Sell to remaining shareholders.
  • Transfer the company to family member(s).
  • Retain ownership but become a passive owner.

Stage Five: Implementation Of Chosen Business Exit Route And Post-Transaction Servicing

  • Engage shareholders and the company to execute the chosen business exit route (external or internal sale or transfer).
  • Develop a contingency plan for the business (define key succession management, and be able to answer who will run the business in the event of a death or disability of current operational shareholders).
  • Develop a contingency plan for the owner’s family (financial, estate, and charitable planning).
  • Develop an ongoing servicing plan for the business and family (ongoing review to ensure that planning is being followed and to advise in the event of life changes within the family or succession management).

We’re Here to Help

Transitioning your business and relinquishing the reins will likely involve a mixture of emotions. As with any important business decision (and especially when it’s emotional), it’s wise to partner with a financial professional who can serve as an objective and knowledgeable third party. We at Wallace Hart Capital Management would be honored to help guide you through these decisions, the transition, and whatever comes next. To get started, contact us at 859.300.3030 or request an appointment online today!

About Jeremy

Jeremy Wallace is founder and chief investment officer at Wallace Hart Capital Management, an independent financial services firm committed to offering comprehensive advice and customized services. Jeremy has 20 years of experience in the financial industry and is passionate about helping clients preserve and enhance their wealth so they can pursue their passions. Jeremy graduated from Emory University with a degree in international economics and a certificate in financial planning. Outside of the office, Jeremy spends most of his free time with his wife, Julie, and their three children, Isabel, Lincoln, and Reid. He is an avid Chicago Cubs baseball fan, and  he enjoys golfing with his wife and traveling with his family. Learn more about Jeremy by connecting with him on LinkedIn.

About Andrew

Andrew Hart is the co-founder and chief planning strategist at Wallace Hart Capital Management, an independent financial services firm committed to offering comprehensive advice and customized services. Andrew has 15 years of experience in the financial industry and strives to provide new and better strategies and processes to improve his clients’ lives. Andrew graduated from Wittenberg University with a bachelor’s degree in business management and holds a certificate in financial planning from Georgetown University and the CERTIFIED FINANCIAL PLANNER™ designation. When he’s not working, you can find him enjoying the city of Lexington, KY, teaching at the University of Kentucky’s Financial Planning program, and spending time with his wife, Susan, twin sons, George and Ted, and daughters Merritt and Philippa. To learn more about Andrew, connect with him on LinkedIn.