Do I Really Need an Exit Plan?

Do I Really Need an Exit Plan?

Oct 3, 2019 11:52:45 AM / by Zach Taylor

Business exit plan sign


The vast majority of business owners want to retire at some point during their lives. Paradoxically, however, a 2016 survey of business owners shows that 83% don’t have a written exit plan. Even if you’re among the 9% who plan never to retire, an exit plan can strengthen the value, performance, and future potential of your business. Lack of an exit plan, on the other hand, can leave your business reeling in the wake of unforeseen events. Today, we’ll look at a few ways an exit plan benefits a business—even when the business owner plans to be there for life. 


Continued Financial Security

Continuing to work throughout your life can provide a good measure of financial security, allowing you to enjoy the lifestyle you’ve created throughout your elder years. However, life’s uncertainties become more difficult to navigate as we get older and are more susceptible to health issues, making this a risky proposition. Economic downturns and an ever-changing business environment present risks to the business and, by extension, the owner’s stream of income. Creating an exit plan forces you to think about how you would delegate responsibilities in the event that you are unable—either temporarily or permanently—to run the company at full capacity. This helps to ensure your continued financial security and that of the employees who rely on you. 



If you don’t plan to retire, you might feel like you have all the time in the world. Bear in mind, however, that it’s fairly common for business owners who think they’ll never retire to change their minds at some point. If you haven’t planned for your eventual exit and then decide at some point that you do want to retire, you may find yourself rushing to get everything in place when that time comes. Even if you don’t retire, failure to have an exit plan will result in unnecessary disruptions in the event that you develop health problems or die unexpectedly, putting your business and those who continue to rely on it at risk. 



When a business owner maintains their leadership up until death, the new business owner enjoys a step-up in basis, minimizing any capital gains tax that may be due. Additionally, with today’s exclusion limit, estate taxes no longer apply to most owners. Most ownership transfers will not be taxable at the owner’s death. This, however, can be a gamble as it assumes a strong status quo at the company. 


Company Values

Post-exit goals such as benefitting your community, maintaining your legacy, and continuing the culture that you’ve built within your company can be difficult to attain if you don’t plan for an eventual transition. If your presence is necessary to maintain success, then your business is in danger of quick failure if you can’t be there. Even if you’re young and have no plans to retire, having an exit plan ensures the business can continue as you wish, even in the face of unexpected events. 



Owners who choose not to exit their businesses often refuse to delegate responsibilities, considering themselves the go-to person for all business decisions. Unfortunately, this means that harm that befalls a business owner can easily transfer to the business, its employees, and its clients. Having a succession plan in place before transfer of responsibilities or ownership becomes necessary to protect the company and those who rely on it. 


Even if you tend to do everything for your business on your own, consider the benefits of consulting a professional to develop your exit plan. For more insight into whether you and your company may be prepared for your exit, take our exit plan readiness assessment. 

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Topics: Exit Planning

Zach Taylor

Written by Zach Taylor

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