Exit planning isn’t just about selling. It’s about options.
By Sarah Hite – MBA, Certified Cicerone® & Wealth Management Advisor with Northwestern Mutual
You started your company likely because you have a passion for what you do, for the joy it brings to your customers, or because it makes money. Finding something that brings you excitement and that you can make into a career is a really special thing. I’m going to guess that when you dove into what you love, you had at least one unexpected surprise along the way in the “business-y” part of your business.
In the decade I spent working in sales and quality within the beer industry, I realized that most brewery owners’ primary struggles stemmed from not knowing what they did not know. This isn’t some sort of inception-coded concept, just the reality that most beverage company owners don’t come from business or finance backgrounds.
With the sharp turn that the industry has taken in the past several years, the chief planning gap we are seeing is the lack of exit strategies. Many companies are running into losing revenue due to changes in drinking habits, tariff costs, or general economic slides. It’s heartbreaking for me to watch these long-standing companies run up against challenges like these with no safety net and no plan to navigate through it. Now, the challenges I just named are generally out of your control. Exit strategies are not about controlling the uncontrollable, they’re about safeguarding everything else.
Establishing and maintaining a solid exit plan that accounts for many of the possible outcomes, but most importantly the outcome you want, is as essential to your business plan as your marketing plan or cash flow management.
Many brewery exits are accidental (and painful) but with proper financial planning, they don’t have to be. Financial planning gives you leverage in your business and with your money – even if you never sell. One strategy that my clients have used is implementing tax-advantaged cash-value permanent life insurance. Sounds weird, right? It’s not! Let me explain…
Tax-Advantaged Cash
We all know that we need to plan for operations, cash flow, and retirement planning but the gap we find most often with our business-owner clients is that they have done no planning for the time between near-term and long-term. Implementing a safe place for funds that is guaranteed not to lose value and can grow tax-advantaged can mean the difference between failure and survival (or a graceful exit). By planning for what happens between now and when our retirement dollars are accessible, we close the gap. This is, of course, best discussed with your financial planner as this insurance is not available for everyone; however, based on a recent Earnst & Young study, financial plans with this type of tool outperform investment-only (and term life plus investments) strategies every time.1
Most of our clients will implement this piece of their financial plan as part of their buy-sell agreements; there are many ways to structure cash-value life insurance and depending on how many people you have at the helm of your business, these policies can be a great source of capital when times get rough.
Speaking of a buy-sell agreement – do you have one? I would venture to guess that most of you, the readers, do have something in place, but have you reviewed it with your financial planner? Many of our new clients come to us with agreements in place that lack vital components like disability overhead insurance, a current business valuation, or clear funding mechanisms because they did not have a meeting of all of the minds. So, let’s talk about it.
Disability overhead insurance protects a business’ ability to keep the lights on, the beer cool, and the employees paid even if an owner or a key person becomes disabled and can’t work. Disability can encompass a wide range of situations beyond physical injury. We’ve observed full disabilities due to mental health concerns, temporary disabilities following a cancer diagnosis, and various others arising from life events experienced by our clients. Rather than your cash flow and revenue grinding to a halt while expenses continue to pile up during a key person’s disability, this type of policy steps in to cover essential costs like rent, utilities, payroll, supplies, insurance premiums, and professional fees. With this protection, instead of shuttering the business, burning through cash reserves, taking on debt, going through panic layoffs when a key person receives a horrible diagnosis or injury, you can allow that person to focus on a full recovery and keep cash flowing as normal. This protection buys you time, stability, and options so that one person’s health crisis doesn’t turn into an existential business crisis. In terms of your buy-sell agreement and exit plan, having this protection in place can determine whether you get to choose your exit strategy or if it chooses you.
Now, I know a lot of this is incredibly morbid. It’s no fun to think about – it’s the beverage industry for cripes sake! We’re here for the party! That’s where a good financial planner can help you focus on the parts of the business you want to focus on. A good financial planner will likely be not only one of the most positive people you know, but also someone who genuinely considers you, your business, your team, and your family. Simultaneously, they are unafraid to tackle the less glamorous, non-sexy aspects of planning to ensure your financial well-being.
Business Valuations & Your Financial Plan
When planning an exit strategy, a business valuation is not just nice to have, it’s the foundation for smart decision-making. A good business valuation will tell you what your business is actually worth, not what you hope it’s worth. This matters for everything from your buy-sell agreement and succession planning to insurance coverage, financing, and potential exits. Without a credible valuation, you’re flying blind, risking disputes, and risking being underinsured. A clear defensible valuation turns guesswork into strategy and gives you a stake in the ground of reality.
A solid exit strategy is built long before an owner is ready to walk away; it can only be made by implementing a diversified and holistic financial plan that grows with you and your business so that you can guarantee control of the controllables. A strong business valuation is going to set the baseline by defining what your beloved business is worth on paper, which will inform how your financial plan will perform and subsequently how many options you have for your exit strategy. Cash-value life insurance can fund your buy-sell agreements, create liquidity for your heirs or partners, and prevent a forced sale at the most harrowing of times. Disability overhead insurance protects the business’s day-to-day viability along the way, ensuring an unexpected health event doesn’t erode value before an exit ever happens. A unified approach with all these players on your team will protect the business, protect your leverage, and foster the outcome of your dreams.
1 Earnst & Young, 2024. Benefits of integrating insurance products into a retirement plan. 2411-10068-CS_ey-benefits-of-integrating-insurance-products-into-retirement-plan_v22
