What should an exit plan include?

That is the short answer, and it is worth being blunt about what it excludes. A folder of tax returns is not an exit plan. Neither is a valuation on its own, or a broker's opinion of value, or a number in your head that you have never tested. An exit plan is a written set of decisions with a date attached to each one. Below is the checklist we work through with owners, in the order the questions actually have to be answered.

The five questions a complete exit plan answers

Ascension CFO uses the Exit Planning Institute's five-W framework, because it forces the questions into the right sequence. Owners almost always want to start with the number, which is the fourth question rather than the first. Answering the earlier ones first is what makes the later answers usable.

Who am I exiting the business to?

Everything downstream depends on this. A third-party buyer, a family member, your management team, a partner, or an employee trust are five different transactions with five different price ranges, tax outcomes, funding sources and preparation requirements. An internal buyer will fund the purchase from the company's own future profits, which means the forecast is the deal. An outside buyer brings capital but scrutinises everything.

You do not have to be certain. You do have to commit to a working assumption, because a plan aimed at "whoever turns up" cannot prioritize anything. The trade-offs between the routes, and how each one gets funded, are laid out in our guide to business succession planning.

What is the business worth today, and what do I need it to be worth?

Two numbers, and the gap between them is the actual plan. The first comes from a valuation using real transaction data for your industry and size, not a rule of thumb. The second comes from your own financial life: what the proceeds have to produce, after tax and after debt, to fund whatever comes next.

Most owners have never put both numbers on the same page. When they do, one of three things is true. The gap is small and the work is mostly tidying. The gap is large but the runway is long enough to close it. Or the gap is large and the runway is short, in which case the honest answer is a later date, not a more optimistic spreadsheet.

When do I want to exit?

A date turns the plan into a schedule. It determines how much value-building is realistic, when the valuation should be refreshed, when advisors get assembled, and when the business needs to be presentable to an outside party. Timing also carries its own financial weight through tax treatment, market conditions and the state of your own earnings trend in the year you go to market. Exit planning typically starts three to five years before the intended transition, for reasons we set out in the 3 to 5 year rule and why timing drives exit value.

Why do I want to exit?

This is the question owners skip, and it is the one that determines whether they are satisfied afterwards. Retirement, burnout, a new venture, health, a partner's timeline and legacy are different motivations, and they produce different plans. An owner leaving because they are exhausted needs the transition to reduce their workload starting now, not on closing day. An owner selling to fund a next venture cares more about cash at closing than about an earn-out. An owner focused on legacy may accept a lower price from a buyer who will keep the team.

Write the reason down. It is the tiebreaker for every difficult decision later in the process.

How can I exit on my terms?

The fifth question is where the first four turn into work. It covers building business value, aligning your personal finances with the transaction, reducing the risks a buyer would price against you, and coordinating the advisors so they are not each solving a different problem. Exiting on your terms means arriving at the transaction with options: more than one credible buyer, a number you can defend, and no urgency forcing your hand.

The checklist: what should physically exist in the plan

If the five questions are the structure, the following is the contents. A finished exit plan contains all of it, in writing, with an owner and a date against each item.

• A current valuation, dated, with the methodology and the comparable multiples stated.
• A target value derived from your own post-exit financial requirement, with the gap between it and the current valuation quantified in dollars.
• A named destination for the business, and a second option if the first falls through.
• A target date, and the earliest date at which a forced exit could be handled without damage.
• A written value-improvement plan: the specific financial changes that close the gap, in priority order, with the expected effect of each on the multiple.
• Three to five years of clean, reconciled financial statements that tie to the tax returns, plus a forecasting process that is running, not planned.
• An owner-dependency inventory: which relationships, decisions and processes currently run through you, and who each one moves to.
• A funded buy-sell agreement covering death, disability, divorce, distress and disagreement, with the valuation mechanism specified.
• A tax structure review, because deal structure often moves the after-tax outcome more than the headline price does.
• An advisor roster: the CFO, the attorney, the tax advisor, the wealth advisor and, at the right time, the broker or banker.
• A post-exit financial plan showing what the proceeds have to cover and for how long.
• A written answer to what you will do afterwards. This is not a soft item. Regret after a sale is common, and a meaningful share of it comes from owners who never thought past the closing.

What most exit plans are missing

Three gaps show up more than any others.

The first is that nothing is quantified. A plan that says "improve profitability" and "reduce reliance on key customers" is a list of intentions. A plan that says "raise gross margin two points, which at a five times multiple adds roughly this much to the sale price, by the end of next fiscal year" is something you can execute against and measure.

The second is that the owner's personal numbers are absent. The business plan and the financial plan sit in different folders and are never reconciled, so nobody knows whether the target price is sufficient or twice what is needed.

The third is that the plan assumes the exit is voluntary. Roughly half of business exits are not. A plan without a funded buy-sell agreement is a plan that only works if nothing goes wrong for the next five years.

How to tell whether your plan is finished

Five questions. If you can answer all five out loud, with numbers, you have a plan. If you cannot answer two or more, you have a starting point.

1. What is your business worth today, and who produced that number?
2. What do you need it to be worth, and what is that figure based on?
3. Who is buying it, and where does their money come from?
4. What are the top three financial changes between now and then, and what is each one worth?
5. What happens to the business, and to your family, if you cannot work starting tomorrow?

Working through those five with an advisor who can build the numbers behind them is the whole of our exit planning service. Consulting is billed at $250 per hour, and ongoing work runs on monthly advisory plans priced to the needs of your business. The first conversation is a free strategy call, and you can book one on our calendar.