CPA Now
Jun 16, 2017

Expert Offers Tips on Exit Planning

William HayesBy William J. Hayes, managing editor, Pennsylvania CPA Journal


Exit planning: It isn’t something you only do when an emergency strikes. Exit planning is a forward-thinking strategy that should be planned well in advance to ensure comfort for yourself and your clients, whose businesses depend on your unbroken service and attention. I sat with Charles R. Kedra, CFP, AIF, CEPA, senior partner and director of business advisory services with Legacy Planning Partners in Plymouth Meeting, Pa., to discuss the advisory team you should have in place to have success with the exit planning process, the pros and cons of selling to outsiders vs. insiders, and more.

Charles KedraWhat sort of professionals and resources should a business owner be consulting with when going through the exit planning process?

The CPA typically is a critical professional relationship because of his or her knowledge of the company and its finances. Other important professional resources include a mergers and acquisitions (M&A) adviser, M&A attorney, estate planning attorney, and experienced financial advisers. Owners may wish to consider an adviser’s credentials. A financial adviser with experience in exit planning and a CFP or CEPA designation may be helpful in these situations. An adviser with exit planning experience will typically serve as the quarterback of this professional team.

What would you say are the biggest factors a business owner needs to consider when putting together an exit plan?

Number one is readiness. The owner must know and understand if he or she is financially and emotionally ready to make this transition. If ready, the next biggest thing is the integration of business value with the personal financial plan.

Some owners will sell to an outsider, while others will look to sell to insiders, whether they be family or management. What are some advantages and disadvantages associated with each scenario?

As you can imagine, every owner’s circumstances are unique. The biggest advantage with a sale to an outsider is the potential to net the highest value. An owner’s exit may be expedited with a sale to an outsider. A sale to insiders may be the opposite – a potentially much lower value, a drawn-out exit process, and more risk. An owner would choose a sale to insiders, such as to family or long-time employees, more often for emotional reasons.

What is the owner’s responsibility to his or her customers? Should they be informed early in the process or after plans become solidified?

The owner does not have any obligation to inform customers of a pending transition. It can be risky to inform them too soon. However, if it’s a sale to insiders, the owner will probably want to let the customers know early on to enhance the success of that type of transition. Outside buyers assume the risk of maintaining customer relationships. The outside buyers consider this when valuing the business.

Do you see any commonalities as far as when owners decide that they’ve had enough and why they decide to exit?

Not really. These decisions are very personal and emotional. No two owners’ objectives are alike. This uniqueness is what makes it interesting. The one thing I find in common is that owners rarely have a written financial plan, which serves as a roadmap to a successful retirement.

What are some of the steps owners can take to build and preserve value in their business?

One of the most important value drivers is a stable and motivated management team. Possible strategies include enhancing compensation and benefits programs, such as through stock bonus plans or stock appreciation rights, among other options.

If an owner is considering an exit from his or her business, how far in advance of the desired exit date would you say is the right amount of lead time to begin planning?

It depends on the owner, the business, and how well organized they are. A good rule of thumb is 12 to 24 months. More time usually allows us to enhance value by focusing on the value drivers.


Charles R. Kedra, CFP, AIF, CEPA, is a registered representative and investment adviser of Securian Financial Services, member FINRA/SIPC.



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