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5 Reasons Your Business Needs An Exit Strategy

Exit Strategy3If you are like most entrepreneurs, the last thing you are thinking about is how to exit your business. You are more concerned about growth, expansion and sometimes just making ends meet. Well, the truth is, all successful business people have a clear exit strategy as part of their overall business plan. Just what is an exit strategy? An exit strategy is a plan on how you and your partners will leave the business. This leaving can be the sale of the business, an IPO, or transferring ownership to your heirs. Whatever your exit plan, building the business with this final goal in mind, will make things much easier when the time finally comes. If you are still not convinced of the necessity of an exit strategy, here are 7 reasons your business needs one.

1. Allows for retirement

An exit strategy allows for the business owner to retire comfortably. If you’re like most owners, most of your net worth is tied up in your business. Having a clear cut exit strategy will enable you to turn this net worth into cash permitting a comfortable and worry free retirement.

2. Provides for the future

If you are operating a successful business, its important that the business can carry on without you. Your employees and family depend on the business thus having an exit strategy planned can allow your business to continue to provide for your family and loyal employees.

3. Cashing out to invest

Even if you are not ready to retire, many entrepreneurs have the goal of starting other businesses or becoming a venture capitalist to help other business people with good ideas but limited funds. An exit strategy can provide the liquidity you need to obtain these goals.

4. Be appealing to investors

If you are seeking outside investment for your business, having a clear exit strategy is a must. Investors want to know how they are going to make money. An exit strategy will put this in black and white so that potential investors can see how you plan to earn them a return.

5. When to quit

Finally, an exit strategy creates a time frame for when to throw in the towel. It’s important not to keep throwing good money after bad in business ventures that simply are not working. Going into the business with an exit strategy will provide guidelines on how to end the business, regardless of its success.

Sliding Door Injury Results in $21.5M Trial Verdict

Holland AmericanA federal jury trial awarded $21.5 million in damages to a Springfield, Illinois man who was injured by an automatic sliding-glass door on a Holland America Line cruise ship dating back to 2011.

The personal injury damages awarded by the jury were $5M, which are tax free.  The punitive damages were $16.5M which means a windfall for the IRS.  That’s right, the entire $16.5M is taxable and the attorney fee, which is normally contingent for personal injury cases (30-40% contingent fee), will be challenging to deduct.  That means the IRS will get the largest share of the $16.5M and the attorney will get a large cut as well.

Shockingly, it pays to evaluate the tax implications into your legal decisions when the punitive awards could create a huge tax bill.

As you might suspect, Holland America Cruise has appealed the verdict so a settlement for an amount less than $21.5M, but a higher award for personal injuries (higher than $5M) may be a win win solution.

Morey and Associates is an Orange County California CPA Firm with offices in Newport Beach and San Clemente.  We service businesses and individuals who seek to lower their tax bills, legally.  Call 949-759-5626 and ask for Jerry Morey.  Our initial consultation is free.