Are you facing the future with a golden parachute, or a knapsack? In part one of the great American success story, a rugged individualist defies the odds and builds a successful business.   Contrary to popular belief, the sequel to this story does not usually start at the point where the entrepreneur achieves the ideal departure from the business—retirement at a ripe old age while still physically fit, mentally sharp and extremely wealthy.   Instead, part two of The Great American Dream quite often begins with the business owner waking up in a minefield and discovering that an unwelcome contingency has shattered “business as usual” and threatens to destroy a life’s work. That is when the architect of the company’s exit strategy finds out just how good he or she—and the company’s stable of trusted business and financial advisors—really are.   Exit Blunders   The term “exit strategy” is normally used to describe a business owner’s plan for leaving the business in good financial shape, on a self-selected timetable and otherwise on his or her own terms. The three most common three business exit strategies are:  third-party sale, family (or management) succession and the die-in-the-saddle-with-your-boots-on approach.   All business planning begins with defining the owner’s exit objectives. Good business planning aims to ensure that those objectives are met despite various contingencies that life throws at every business owner.   There are 10 fatal mistakes that can destroy any privately owned business and postpone the owner’s retirement.   The sole owner becomes disabled, but has no disability insurance, no business succession plan and no personal estate plan. The sole owner dies prematurely and has no (or not enough) life insurance, and failed to give proper attention to business succession or estate planning during life. A catastrophe befalls the family business and all of the owner’s financial eggs are in one very “illiquid” basket — the business. One of two equal partners dies and there’s no buy-sell agreement and no way to fund a buy-out anyway. The “mother of all lawsuits” is filed (one with a legitimate claim) and the owner finds out about asset protection planning after being served with the claimant’s petition. An irreconcilable falling-out rips a 50/50 business relationship apart and there’s no buy-sell agreement to impose an orderly split-up on the emotional chaos of the ensuing business divorce. The company’s top salesman (who knows all the major customers on a first name basis) quits and takes the best customers and employees, as well as the cherished trade secrets, and there’s no non-compete agreement to prevent it. The founder has selected a capable “heir apparent,” but there’s no written succession plan and there’s no realistic way to fund a business transition anyway. The owner has the dream buyer “on the hook,” but can’t afford to transfer the business, because of the prohibitive tax cost of selling and a complete absence of independent retirement income. An unforeseeable disaster occurs and the owner doesn’t have a world-class team in place, lacks a personal financial game plan and has no business exit plan.   Plan the Inevitable   Business lawyers and their colleagues in the financial services industry know something that their clients seem to ignore—every business owner will leave their business. What no one knows is when they’ll leave and why. Among the reasons for this inevitable departure (besides the 10 mistakes mentioned previously) are other business opportunities, “burn out,” the need to expand the capital base in order to grow the business, a desire to reduce the entrepreneur’s financial risk and the divorce of a married business owner.   Business exit planning is all about “making it” in the first place, and making “it” last for the people it was intended to benefit. Each business owner must decide on the level of exit planning they are comfortable with.   One choice is to wait as long as possible to act, until all relevant facts and circumstances point clearly in the direction of one exit path (e.g., sale to an outsider). This is the “late-stage exit planning.” It relies on a one-time fix of a known exit-triggering event. This tack is very efficient, if one’s crystal ball can accurately predict the timing and the underlying cause of the owner’s withdrawal from the business. If not, it squanders the gift of time.   The second, and better, choice involves positioning the owner (as early as possible) to withstand as many business contingencies as feasible. A multi-disciplinary team of business and financial advisors is carefully built to help the owner create and preserve “going concern” value inside the business (that does not depend on the owner’s day-to-day participation) and accumulate personal wealth outside the business through tax-wise withdrawals from the business.   While most entrepreneurs are comfortable to a degree with risk, leaving your exit strategy to fate is neither a wise risk, nor a necessary one. By planning now, you can set contingencies and position yourself and your business for the future.                                        ____________________   Vic Panus is a business and tax attorney with offices near KCI airport in Kansas City, MO. His practice focuses on personal estate gift planning and advising family business. Business transition and exit planning is his signature area of expertise. He can be reached at (816) 587-2987 or vic@panuslaw.com.                <<Click here>> to download a printable copy of this article.