The Business Owner Exit–Succession Process

Preston Rosamond |

By Preston Rosamond

Starting your own business and growing it to be a full-fledged success can often feel like raising another child. It’s not just your career—it’s your life. It takes blood, sweat, and tears, so it’s not for the faint of heart. And because starting and running a business is all-encompassing, it’s unlikely your few spare moments are spent thinking about how and when you’ll transition out of this ownership role in the future—a little like sending your kid off to college. But after all the years of hard work that go into building a successful and sustainable business, it’s inevitable that one day you’ll face decisions surrounding the final transition of your company. 

Every single business owner must one day transition their business at some point, which means advanced planning is critical to achieve their goals—both for their business and family. Unfortunately, less than 25% of business owners have established a formal written business succession plan. (1) Too often, business owners just “wing it” and they miss many planning opportunities to put themselves in a tax-favored position prior to making a move.

The failure to plan is typically due to two reasons: one, business owners are much better working in their business than on their business—as they should be; two, 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 A to Z. 

Let’s take a look at what The Rosamond Financial Group covers in our stage-by-stage process. 

Stage 1: 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 2: 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 3: 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 4: 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 5: 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

With the emotional attachment that accompanies owning your own business, naturally the transition to relinquishing the reins will bring about a range of emotions. As with any important business decision—especially when it’s emotional—it’s a good idea to partner with a financial professional you can trust to serve as an objective and knowledgeable third party. Having worked through these issues with our clients, we at The Rosamond Financial Group stand ready to help you navigate these complicated decisions, the transition, and whatever the next chapter holds. Call my office at 830-798-9400 or email to schedule a complimentary get-acquainted meeting. We look forward to hearing from you soon!

About Preston

Preston Rosamond is a financial advisor and the founder of The Rosamond Financial Group Wealth Management, LLC with nearly two decades of industry experience. He provides comprehensive wealth management and financial services to individuals, professionals, and families who enjoy simplicity and seek a professional to help them pursue their goals. Preston personally serves his clients with an individual touch, a sincere heart, and his servant’s attitude is evident from the moment you meet him. Learn more about Preston or start the conversation about your finances with him by emailing or schedule a call with our online calendar.