Post-Pandemic Exit Planning: Are You Ready?

When the COVID-19 pandemic hit, business owners worldwide paused their exit plans, if they had one. Much like the economic downturn of 2008, exit planning during a pandemic got complicated.

Both times, growth slowed and many who had counted on a near-term exit were faced with a lack of buyers and a depressed valuation of their business.

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Exiting Post-Pandemic Requires Preparation

While the process for a successful transition coming out of a pandemic still encompasses the standard steps, there are some nuances to keep in mind.

• Develop Your Goals and Objectives

• • WHEN: Determine when you would like to exit. Chances are any buyer will want you to stay on for some time to ensure a smooth transition. Build that time into your plan.
  • HOW: Your business is likely your largest asset and the main cash flow generator of your current lifestyle. Calculate your lifestyle needs and determine if the exit transaction will support you throughout your remaining years.
  • WHO: Determine who will be the buyer. Whether it is a family member, management, a financial or strategic buyer, or an ESOP, the transaction path will need to be planned accordingly.

(Download Video Transcript)

Valuations Matter: Get an Appraisal of Your Business

A valuation is the basis for your sales price and includes a review of historical profitability, indicating a temporary or permanent pandemic effect.

Why is a valuation important?

• An independent valuation analysis will assist in the negotiation process.
• If your company's value has been diminished by the pandemic, you have the opportunity to develop an action plan based on a SWOT (strengths, weaknesses, opportunities, and threats) analysis.
• The sales price is a factor of future cash flow, so the narrative should be about where you are today and what is in place to grow the business in the future. Make sure your business plan is tuned up and considers navigating future unknowns.
• Once the value is determined, you can create a strategy to bridge any gap between your financial goals and your business value.
• If your value is on target, consider accelerating your timeline so buyers can take advantage of current low-interest rates.

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Strategize the Transaction

Gather a team of advisors with the skill sets necessary to help navigate a successful transaction including an accountant, banker, attorney, and potentially others who specialize in the transaction type you choose.

In advance of the transaction, you will need to develop plans for:

• Buy/Sell Agreements
• Employment Agreements (with non-compete and non-disclosure provisions)
• Asset Protection Strategy
• Business Continuity Plan
• Estate Planning
• Tax Planning

The pandemic might not be the only thing that could have thrown a hiccup in your exit. Proposed changes to estate and income tax laws might cause drastic differences in an exit if not planned for. Moreover, plan for the alternative income tax implications of any transaction structure.

"It's not about the sales price, it's about the amount you bank after taxes."

Get Ready for the Encore

Figure out what you will do after the successful transition of your business. Whether it be golfing, spending time with grandchildren, working on a hobby, or volunteering, understanding what that will look like is critical, not only for your mental health but to paint a picture of the finances you will need to make it happen.

You worked hard to make your encore successful. Spend the time to plan for it as well. You will also need to determine the appropriate asset management for your business's monetized value to secure your finances.

• If your business has been successful or even thrived during the pandemic, great. You have probably been busier than ever. That said, you won't have a successful exit if you don't have a plan. You need to spend some time "on" the business, not just "in" the business.
• If your business has suffered during the pandemic, you are not alone. Use the time you might not typically have had to fine-tune the planning discussed above so you can come out of the pandemic firing on all cylinders.

"Don’t be that owner who one day wakes up and decides it's time to get out. It will be too late to garner the best price and manage the cost and tax ramifications optimally.”

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Call SVA Certified Public Accountants today. The cornerstone of SVA will always remain the same, providing service and value to help our clients achieve Measurable Results.^® while exceeding their expectations. We have the consultants to assist you in all phases of a successful exit planning engagement. We look forward to working with you.