What is exit planning and why is it important?
When you hear the term “Exit Planning” what do you think of?
*Some people think it is like estate planning, where you look at the value and diversification of your portfolio and analyze whether you will have enough money for either your retirement, or to make the next move in your life.
*Some people think it is like staging your home for sale, where you make sure everything is attractive to potential buyers to maximize the amount you can sell your home for.
*Some people think it is about getting your financial books “in order”, where you make sure you can explain how your business makes money.
The truth is, Exit Planning for resorts includes all these functions integrated with overall business planning. Just like running a resort involves many different hats, Exit Planning for resorts involves analyzing lots of different aspects and asking lots of specific questions.
A smart resort owner consults with professionals while running their business. If you talk to professionals individually: accountants will help you save money on taxes; bankers will loan you money; land planners will help maximize the use of your land within zoning restrictions; lawyers will create legal agreements, and real estate professionals will help you sell your resort. But an Exit Planner will help tie these functions together into a coordinated business plan.
A good Exit Planner may not give you all the answers you want to hear, but they will get you pointed in the right direction and suggest how to maximize the value of your efforts while running your resort.
It’s quite possible you can do banking, accounting, legal work, land planning and real estate correctly as individual tasks, but fail from an overall business and Exit Planning perspective.
How can this be possible?
Suppose you have been at your resort for a few years and you see a business opportunity like adding a new cabin to your resort. You have the land to do it. You have zoning approval, and land planning says you don’t need expensive storm water or sewer modifications. The new cabin will offer a good return. The added combined income greatly exceeds the combined expenses with the new cabin, so you have your bank’s and accountant’s approval. You don’t need any new easements, so you have your lawyer’s approval. Your real estate professional likes more net income, so you have their endorsement.
What could possibly be wrong?
An Exit Planner will force you to ask the tough questions and have you evaluate your overall business plan. The Planner will force you to think about how long you want to continue running your resort. The Planner will likely ask you to go back and get answers from your professionals so you can end up with the greatest possible income when you sell your resort. Does the sum of the added annual income and any added value to the resort eventual sales price exceed the cost of financing and mortgage pay off? Have you properly segmented things on your Depreciation schedule? If you don’t have a mortgage and can pay for the improvement with cash, what is the value versus other possible investments? Does the investment make the property harder to sell, or increase the time it would take to sell the property based upon your needs? These are just some of the tough questions an Exit Planner will ask.
This shouldn’t paralyze you. You should improve your property every year!
If you are concerned the value of your resort’s land is worth more than your business, it’s not too late! You should get started now. You shouldn’t be surprised or depressed when you get ready to sell your resort. Now is the time to make an investment so you can maximize your resort’s value and exit when you want to!
A smart business owner thinks about how they are going to sell their business the day after they buy their business. We are here to help you update your business plan and coordinate your efforts for a successful exit. Send us an email or call us today!