With the Great Resignation driving so many business owners to seek the counsel of exit planners, the International Exit Planning Association (“IEPA”) wants to share exit planning experiences from over one hundred (100) engagements. Our mission is to assist advisors and consultants who work with business owners to have the knowledge and resources to conduct more successful exit planning conversations and engagements and more successfully participate in this generational phenomenon of exiting owners.
We believe that having a solid understanding of the needs of business owners, as well as a view of the state of the overall marketplace of private businesses and capital, are both critical to consistent success with helping business owners with their exit planning. So, we are excited to be sharing these stories and lessons and hope that you find them valuable.
Fifteen Years of Exit Planning Perspective
What was true fifteen (15) years ago when the IEPA was in its’ formative stages is even more true today; that the decks are stacked against business owners wanting to exit their businesses. And now, in 2022, the baby boomers are every bit a part of the great resignation and wanting to exit their businesses at a higher rate than ever seen before. This dynamic creates continued and increased demand for this unique, exit planning service. While the need is high and increasing, today’s marketplace is poorly designed to assist an owner with an exit for a variety of reasons. Three (3) leading reasons why business owners struggle with successful exits are listed below.
Issue #1: Who Does an Owner Listen to? Personal Planning vs. Business Consulting
An owner who has the majority of their wealth trapped in their illiquid business typically receives advice from two (2) different types of advisors – personal financial planners and consultants who advise on business issues. The challenge that owners face is that these advisors, most often, (i) approach the owners’ ‘wealth’ with very different perspectives, and (ii) these advisors typically do not not speak with each other or collaborate on looking after that owner’s overall wealth.
For example, a personal financial advisor will typically look for an owner to have more wealth held outside of the business. Whereas, at the same time, a business consultant may be telling a business owner that more investment in the business is required to achieve certain growth and increased valuation objectives. If these advisors are not speaking with each other, then it is the business owner who is disadvantaged by these conflicting viewpoints.
The exit planning process coordinates these efforts of various advisors and helps the business owner have a single-point of contact to organize and facilitate these discussions and balance the personal and business objectives.
Issue #2: The Personal Motives of Those That Surround the Owner
Another issue that business owners face is taking advice that can be centered more on the advisors’ goals than helping the owner achieve their personal and business goals. The reality is that when a business owner begins to plan an exit, it impacts many people who serve that owner including employees, certain advisors, and that owner’s marketplace as a whole. These various influencing forces often-times are designed to help the owner NOT make changes that are good for diversifying that owners’ wealth. For example, employees often don’t want to see change and some advisors, such as a CPA, may fear that they will lose that business owner as a client if someone else becomes the owner of that business.
These items often work to prevent business owners from getting the advice that they may need to make changes to protect and transfer their illiquid businesses. An exit planning advisor serves as an objective point of contact to help business owners gain clarity on that owner’s most important goals and the exit planning process will help that owner navigate these competing interests.
Issue #3: Most Owners Do Not Know That ‘Exit Planning’ Exists as a Service
What is perhaps the largest obstacle to owners getting the advice that they need for a successful exit is that most are not aware that a service called ‘exit planning’ exists. Most business owners know that there are transactional advisors who can help with the sale of their business. These same owners know that their financial advisor can help invest the proceeds of a sale and their tax advisor can assist with taxation and deal structure, and other critical items. What most business owners do not know, is that long before the exit transaction happens, there is a planning service that can assist them with learning what they need to know and being better prepared – on a personal and business level – for a successful exit.
The example here is the owner who treats the sale / transfer of their business the way they might treat the sale of their home. These owners are under the impression that a ‘paint job’ and ‘cleaning up the property’ to make the ‘asset’ more attractive is all that is needed and these items can be accomplished shortly before a sale transaction. The reality is that, unlike real estate, a business is a living, breathing entity with a value that is derived, in large part, upon the ability of that business to transfer to a new owner. The ‘transferrable value’ of a business can often be very different from the theoretical valuation of the business. And, it can take years to increase transferable value.
An exit planning process helps an owner and the business be prepared so that when the timing is optimal for the owner and the business, the plan for a transfer of the ownership of the business can occur. Before the transaction is initiated, that owner can increase the value by learning about what the marketplace truly pays for, long before going to market to seek a buyer or an attempt is made at an internal transfer.
Concluding Thoughts
Business owners can unstack the deck and eliminate many of these disadvantages through the education that an exit planning process delivers. It is up to these business owners’ advisors and consultants to introduce the exit planning service as well as help the owner navigate the challenges that exist in the marketplace that can prevent an owner having a successful exit.