Eide Bailly Billings - Tax, Audit, and Accounting Services

After a lifetime of hard work and building a successful operation, there is much to think through as you consider a transition. Where should you start? What do you want to accomplish now and in the future? Are you forgetting about critical elements?

Below are seven key steps to help get you started on creating a successful exit plan.

Step 1: Identify Exit Objectives and Goals

Making the decision to leave your operation is often a difficult one. You’ve spent your life building your agriculture business, and letting it go can be a challenge. However, if you identify clear goals and objectives, the transition can be much easier. Determining how long you want to work before retiring or moving on gives you an expected timeline for departure and something to work toward. Here are a few important questions to ask about your transition goals and objectives:

  • Do you want to sell the operation to a family member, employees, or an outside party?
  • How much money do you want to make on the sale?
  • What do you plan to do after the sale is complete?

These questions help you create a roadmap for success. In addition, taking time to consider value-based objectives such as family harmony, legacy, maintaining culture, providing for employees and your community, and how to best minimize taxes can ease the burden when it comes time to transition.

Step 2: Quantify Business and Personal Financial Resources

As you plan for your exit, make sure you have a complete understanding of your business value and personal financial resources, as well as what you need after you transition out of the operation.

  • What is your operation worth?
  • What is the expected cash flow?

Identifying your personal financial resources (nonbusiness assets) such as retirement funds, income-producing real estate, and stocks and bonds will help set a clear picture of your financial situation moving forward.

Step 3: Business Value Enhancement

It’s important and beneficial to do a business valuation as you prepare for an exit. In fact, many buyers require one to show them the business’s worth. A business valuation will also determine if the business is worth enough to support your needs and establish a fair market value. Business value is relative and not fixed. The value can vary based on the reason for transferring ownership and on the conditions under which a transfer is made.

There are several value drivers that are taken into consideration. These include:

  • The management team
  • Current operating systems
  • An established and diversified customer base
  • The facility appearance, a realistic growth strategy
  • Effective financial controls
  • A stable and increasing cash flow

Knowing these numbers makes you more aware and prepared for the transition.

Step 4: Ownership Transfer to Third Parties

One exit route for business owners is to transfer ownership to a third party. During this process, the seller generally works to maximize the sale price and accelerate the payment of proceeds. External transfer options include:

  • Orderly liquidation
  • Recapitalization
  • Third-party
  • IPO

Step 5: Ownership Transfer to Insiders

The other exit route for business owners is to transfer ownership to one or more insiders. These could be:

  • Co-owners
  • Key employees
  • A group of employees through an ESOP
  • Children who are sold or gifted the business

There are many things to consider when transferring your operation to either a third party or to insiders. Analyzing the benefits and drawbacks will help you make an informed decision based on your goals and objectives.

Step 6: Business Continuity Planning

Another key step is to make sure your operation continues even after you have left. Consider the impact an ownership structure change could have. For example, are you a sole-owner transitioning to a multi-owner structure? Consider whether a transition will cause a loss of financial resources for the company, or whether new positions need to be created due to the loss of your talent in the operation. This can prevent a loss of employees and customers after the transition and help ensure success once it is complete.

Step 7: Personal Wealth and Estate Planning

Your personal wealth and estate planning should absolutely be included in your business planning and exit strategy. The transition of ownership or the sale of a business will generate cash for owners, their families, and the IRS. Your personal wealth and estate plan can preserve wealth and minimizes taxes by using both lifetime and death planning tools and can also put you on the path to attaining your final objectives.

Eide Bailly Can Help

The team at Eide Bailly welcomes the opportunity to help you consider whether you are ready to exit your operation and to create a succession plan that works for you. They will work with you every step of the way, navigating the financial, emotional and tax considerations—all with your goals and objectives in mind. Visit www.eidebailly.com to learn more or contact Janel Keenan at 406-896-2400 or jkeenan@eidebailly.com .

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