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Top 5 Business Exit Planning Mistakes We See

By John Benedict

Succession planning—or more aptly termed “business exit planning”—is a process with  significant implications for small business owners. It serves two primary goals: creating a seamless transition to preserve your hard-earned legacy, and attaining sufficient income for the retirement independence you seek.

At J2 Capital Management, we specialize in guiding business owners through the complexities of exit planning. In our experience working with clients like you, we’ve observed some common mistakes. Here are 5 common business exit planning mistakes to avoid, along with proactive steps small business owners can take for a successful transition.

1. Misunderstanding What Makes Your Business Valuable

Putting a price tag on your family business isn’t as simple as you might think. While you may have an emotional connection to the business you’ve built, your buyer likely doesn’t. When you’re not clear on what makes your business valuable, you could undervalue or overvalue your business.

To better understand how much value your business holds, you’ll want to consider these factors: 

  • Customer base
  • Cash flow
  • A strong management team
  • Physical assets
  • Intellectual property and digital assets

These are just some of the essential parts of your business that a potential buyer might include in their decision-making process of purchasing your company. For an impartial valuation of your business, start with an informal business valuation. 

Doing an informal version of this step first could be less expensive than the formal version and provide you with a basis to work from. With a general idea of how much your business is worth, you can identify potential gaps and make necessary improvements to increase the business value to reach your monetary goals from the sale. 

2. Delayed Exit Planning

A costly mistake many business owners make is putting off their exit planning. The components of a successful exit plan include several moving parts that require an adequate amount of time to institute. 

  • Strategizing and implementing the plan
  • Getting the most value from your business
  • Mitigating taxes
  • Aligning your personal wealth with income sources outside of the business

Even if you don’t plan on stepping back from your business anytime soon, you can take some pressure off your future self by exit planning well ahead of time. Some tax-efficient strategies for selling a business require over a year or two of advanced exit planning. Even without a sale in the immediate future, it’s never too early to meet with experienced advisors

3. Being Irreplaceable in Your Business

While it feels good to be needed, a major selling point of your business is how transferable it is to new ownership. Self-managing companies are more marketable to potential buyers since the owner is not critical to the business’s future viability. You’ll want to assess how your business runs from these standpoints to determine how transferable your business is: 

  • Are you the face of your business?
  • How much responsibility do you carry on a daily basis?
  • Do you have a strong dependable management team?
  • Does your business have established processes and systems in place?
  • Are you the only one with specialized skills or knowledge needed to run the business?

It could just be time to move on to the next phase of your life, or a devastating event could have rendered you unable to continue managing your business. Either way, a successful exit plan facilitates the smooth transfer or effective sale of your business while retaining its value—another reason why starting sooner rather than later is important.

4. Not Having a Clear Reason for Selling

As a business owner, you might be more focused on the day-to-day rather than the long-term view of your business. While the proceeds from the sale are an obvious benefit of exit planning that leads to a sale, you may want to consider the other reasons behind the decision. 

If financial security is the only reason you’re looking to sell, you could work with a financial planner to identify other methods that don’t involve selling. However, if health or family reasons are behind your exit, then it may be a valid choice. Without a clear understanding of why you want to exit your business, you could regret your decision down the line. 

5. Not Seeking Professional Assistance

Working with a financial advisor you trust is a great way to start the exit planning or succession planning process, as preparing for the sale of your business takes careful consideration around multiple aspects of your company. 

The team behind you (or lack thereof) can make or break your business sale. In addition to the skill and knowledge of a financial advisor, you may need to involve an attorney, business broker, insurance professional, and a CPA to assist in the various parts of the sale or business transfer. 

Ease the Burden of Selling Your Business 

Thinking about selling or transferring your business? It’s no small decision. At J2 Capital Management, we have decades of experience in navigating the complexities of exit planning, always keeping the client’s best interests front and center. 

Let us take the pressure off and help you plan your business exit strategy with confidence. Ready to start? Schedule a meeting online or reach out to one of our knowledgeable business financial strategists at info@j2cmonline.com or 248-641-4444.

About John Benedict

John Benedict is CEO, investment advisor representative, and portfolio manager at J2 Capital Management, a boutique financial advisory firm specializing in in-house custom financial planning, tax, estate, and investment management. With over 20 years of experience, John is passionate about helping clients navigate uncertain markets, reduce risk, and plan for a sound future. John combined his talents and passion in statistics and technical analysis to create J2’s tactical strategies, managing them since the beginning of the organization. He is known for being a visionary and continually looking for ways to improve J2’s services and strategies to better serve his clients. John graduated from Central Michigan University with a degree in business administration and finance, and his thoughts on markets and technical analysis have appeared in The Wall Street Journal, Investment News, and on Moneyshow.com. He was also a contributor to the book The StockTwits Edge: 40 Actionable Trade Set-Ups from Real Market Pros. 

When he’s not working, you can find John boating or participating in water sports and spending time with his wife, Janine, and his three children, Jack, Alexis, and Saraphina. To learn more about John, connect with him on LinkedIn. You can also register for his latest webinar on What Makes J2 Capital Management Different From Other Financial Advisors

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