Business owners typically think in ‘binary’ terms, believing that there are only two options for involvement in their privately held business, most commonly expressed as “I am either all in, or I am out.” Owners who experience an exit planning process expand this thinking to realize that a multitude of options exist, and moreover, many of the options are not mutually exclusive. In other words, an owner can head down one path and change course if they do not like where that path is taking them. This is a critical insight because an owner who is “either all in or out” will typically not see the value in planning for an exit – leaving it all to the end, not knowing until then if the business is salable, if the timing is right, or if they are truly prepared personally.
Exit Planning is Not Widely Recognized as a Service by Business Owners
While the advisory community has been receiving training on exit planning for the better part of the last fifteen years, most business owners have been largely unaware that this service called ‘exit planning’ even exists. Because most owners do not know that exit planning exists, they are not proactively seeking it out to assist them with their needs in this unique area.
However, 2021 marked the tipping point for this awareness. The data presented in our IEPA member broadcast in March supports the suspicion that a long-term trend of Baby Boomer business owners exiting their businesses, which has long been anticipated, has started. We believe that as more and more business owners hear about the benefits of exit planning, the demand will grow. And interestingly, there likely will not be enough qualified and experienced exit planning advisors to meet the needs of the marketplace of millions of business owners in need of this service.
Internal and External Exits are Both Viable Options
In our Certified Business Exit Consultant® training course, we focus on the topic of comparing internal versus external business exits. The reason that we do this is that our experience shows that most owners have not had a detailed discussion about the internal transfer options available that may help them reach their goals.
In fact, the majority of business owners who have paid for and actively participated in an exit plan over the years are torn between selling the company to a third party versus giving the key employees within the business an opportunity to come into ownership. These owners want to reward their key employees with the opportunity for ownership of the company. However, there are many challenges that employees face on the path to try to buy out an exiting owner.
As one of our exiting owners so articulately put it, “my family (including securing and monetizing my business wealth) comes first, BUT my employees are a close second.” What this owner was saying is that he wants his employees to have the opportunity to come into ownership of the business, but not at the expense of the company failing and/or losing value in the process. Interestingly, that business owner chose an Employee Stock Ownership Plan (“ESOP”) for his business exit path after completing the exit planning educational process.
The bottom line is that most business owners do not know that a variety of options exist for exiting a business. And as a result of not knowing that these options exist, these owners stay stuck in what they think they know: that when they are ready to exit, they will sell the business to someone else. Or worse yet, some owners attempt an unplanned transfer to the key people, which oftentimes does not end well for that owner and/or the company.
Business owners can avoid the many pitfalls and challenges that they face with a business exit by seeking out exit planning professionals and engaging in an exit planning process. When business owners invest the time and money to prepare themselves for an exit, experience shows that better results follow. Advisers can enhance and ‘lock-in’ their relationships with their business owner clients by being aware of (at a minimum) the various exit options, or formally trained (ideally) in the specialty of exit planning.