Month: October 2022

One of the most common questions asked by advisors looking to expand their work and engage clients is how to differentiate themselves. It’s no question that the marketplace is oversaturated with messages that may be absorbing your marketing efforts.

As discussed in a recent BEI blog about marketing goals, there is no one-size-fits-all approach that will magically dub you as your client’s most trusted advisor. However, at the core of mapping out the marketing messaging for your Exit Planning practice is determining what your “differentiator” is.

Simply put, your differentiator is the unique value that you provide to your clients. Offering Exit Planning services in itself can be a unique value-add, but there are additional ways to position your value to stand out among your peers and to your clients and prospects.

Defining Differentiation 

According to a recent article by Hinge Marketing, a differentiator is defined as “a characteristic of your firm that separates you from key competitors and gives you a perceived advantage in the eyes of your target audience.”

Oftentimes advisors or professional firms work really hard to come up with their “wow” factor, only to find out that it isn’t hitting the mark. Hinge Marketing suggests that there are three important criteria that should be used to evaluate a differentiator:

It must be true. 

Are the claims you are making about your firm and your services realistic? What policies, training, or procedures are in place that ensure the deliverability of your differentiator?

It must be relevant.  

The solution that you provide to clients and prospects should be directly related to the selection criteria they value most when looking for advice. They won’t choose to work with you if they don’t see what role you play in their decision-making process.

It must be provable. 

What tangible proof can you provide that will legitimize your claims? Prospects want hard evidence.

All three criteria above look at differentiation beyond great products and stellar service. Here’s what Michael Kitces, perhaps the most well-known consultant to financial advisors, says about the great service argument:

“It’s incredibly difficult to use “great service” as a differentiator. In fact, according to one recent study, 72% of all advisors differentiate on client service. And by definition, when the majority of advisors differentiate on the same point, it’s not differentiating anymore!”

Sharing Meaningful Differences 

As far as Exit Planning goes, we look at differentiation in two ways. First, there are a variety of ways that you, the advisor, can use yourself and your practice as a means to differentiate. Secondly, which will be discussed in a blog post forthcoming, is an assortment of ways to use your client and their consumer identity as a means to differentiate.

The list below highlights a few meaningful differences between you and your competitors in terms of your offerings as an Exit Planning Advisor.

1. Industry Specialization 

Clients value advisors that know about their industry. Targeting a handful of specialty areas will help you develop credibility in the spaces that you work with. Be wary of focusing on too many industries as it could decrease credibility. On the other side of the coin, narrowing in on only one industry might backfire with changing economic conditions, so it is best to diversify, earning credibility in multiple areas.

Clients also seek relatability. Similar to industry specialization, a role-based proficiency can serve as a powerful differentiator for your practice. Who you have experience working with and what they do in their respective companies can oftentimes be important to prospects.

2. Unique Connections 

As an Exit Planning Advisor, you will work with a variety of professional service providers during the course of each Exit Planning engagement. This network that you’ve built can benefit your client and can be used as a differentiator too.

For example, if you have a business consultant that has worked alongside you on Advisor Teams, you can present this contact as a resource to clients who may also be seeking consulting services.

In addition, your ties to the community or other organizations (charitable or professional) may be suitable as a differentiator as well. For example, maybe your firm has deep roots in a geographical location that could draw in prospects, or, perhaps your working relationship with other firms might separate you from your competition.

3. Unique Offerings 

Working with business owners who haven’t yet done much planning for their business exit often have a hard time seeing the bigger picture. As an Exit Planning Advisor, it can be a major competitive advantage for you to use your planning process to stand out.

Exit Planning Advisors who are BEI Members have reported success in creating, modifying, and executing Exit Plans using the BEI PlanIt software. This is because this software allows advisors to produce valuable deliverables and unique planning recommendations that are customized to their client.

In addition to being able to provide an Exit Planning Process, you can also provide a unique set of information not available to clients or prospects elsewhere. For example, as a BEI Member, you could make introductions to different advisors in the network, exclusive marketing materials, and more.

4. Notable Accomplishments

In Exit Planning, expertise is what you sell. Your clients are buying your services because you are solving a problem. In addition, a strong reputation is one of the only factors that can overcome a relationship-building challenge.

As mentioned above, Exit Planning Advisors have unique offerings to provide clients. It would be doing yourself a disservice to downplay the training and education that you’ve put in to be able to provide Exit Planning.

5. Staff Credentials

It can oftentimes be hard to make the quality of your team a differentiator, but suppose your firm only hires people with exceptional qualifications or training. This could certainly be used as a differentiating factor.

As far as credentials go, we have also heard of success that comes from a dedication to continued education or designations. For example, it could be framed as a unique Exit Planning value proposition to have multiple members of your staff complete the Advanced Exit Planning Series or go through the Certified Exit Planning Advisor (CExP) designation process.

6. Business Model 

It is common for businesses to attempt to compete on price alone. As an Exit Planning Advisor, you have the capability in defining your own business model by coming up with a fee structure or deposit structure that is different from that of your competitor.

Advantages of Differentiation:

All of the above ideas are just a few that you might be able to use to your advantage, particularly if they meet the differentiation criteria. By choosing a special characteristic regarding your experience, expertise, or offerings, your differentiator has the ability to:

• Convince prospects to work with you
• Entice a greater appeal to a larger target audience (more leads!)
• Increase loyalty from current clients
• Attract referrals
• Establish thought leadership
• Justify higher fees for Exit Planning

The Bottom Line 

It is not always easy to determine a differentiator, and there is no rule that your practice has to have only one. The key is to choose an approach to differentiation that works for your team, research to identify perceptions, and validate them with the marketplace.

When you dedicate time to craft meaningful messages about your differentiators and vow to live them out in your work, that is what really separates you from key competitors and gives you an advantage.

October is Employee Ownership Month and according to the National Center of Employee Ownership (NCEO), this month is dedicated to the celebration of the “undeniable benefits that employee ownership provides to employees, companies, local communities, and the nation.” 

As leaders in the Exit Planning space, we felt a responsibility to touch on this subject as employee ownership is a piece in the larger picture that is Exit Planning. Employee ownership has piqued the interest of many business owners, and it is worth exploring and gaining a clear understanding of how it serves as one exit path that an owner could choose. 

As is true with any exit path that is chosen, calling upon experts is crucial in implementing a successful business transfer. There are a variety of unique benefits and challenges that come with an employee ownership transition. Partnering with employee ownership experts can help you best identify candidates, determine the feasibility for your business owner clients, and monitor the changing market.     
 

The Employee Ownership Market

As the modern-day business landscape is ever-changing, many are unaware of what piece employee ownership has in the pie when it comes to types of business models in the U.S. 

As detailed by NCEO in an article based on 2019 data, there are over 14 million U.S.participants on ESOPs, with just over 10 million that are actively employed and covered by ESOPs. A majority of privately-held ESOPs are S corporations, represented largely by service and manufacturing organizations. 

Another statistic that shows market growth for employee ownership is that according to the NCEO, an average of 250 new ESOPs have been created each year since 2014. However, the total number of active ESOPs has been on a slight decline in recent years. 

Lastly, in a recent BEI webinar presentation, representatives from Project Equity reported on a dramatic shift in the business landscape and exit ath preferences due to generational changes of baby boomer business owners nearing retirement.    

Check out the statistics Project Equity shared, plus their take on employee ownership by watching the webinar recording! 

 

When an advisor is approached with the concept of Exit Planning, it is common to be met with aversion or disinterest in adding those services to their practice. Perhaps they feel the planning work they do is the same thing as Exit Planning, or maybe they feel their business owner clientele are not in need of those services due to their age or place in the ownership cycle.  

However, as data has been collected on the state of the economy and the interests of the modern-day business owner, insights suggest that the market for Exit Planning is larger and more vast than ever before. 

Every few years, BEI produces a Business Owner Survey. While the 2022 report is in its final stages of preparation, there is one insight we couldn’t wait to share: 

Business owners are thinking about Exit Planning at an earlier age than ever before. 

While this might not come as a huge shock, this insight suggests that Exit Planning Advisors will not only be working with business owners who are younger in age, but that they may face new obstacles and a different outlook than in years past.  

Business Owner’s Outlook  

While the above insight might suggest that younger business owners are in a rush to retire, that may not be the case. In a 2021 study by Wilmington Trust, it was reported that confidence in the future of the US economy has declined, as well as confidence in the ability to gain new prospects for their products and services. 

With an emphasis on adopting digital tools and a rapidly changing business landscape, insecurities over technology have accelerated the owner’s interest in Exit Planning and they feel that getting out of their business may be a better solution in the long-term. Business owners are weighing the pros and cons of these factors to determine when the right time is for them to exit, leading them to consider their Exit Plans earlier than ever before. 

How Exit Planning Advisors Can Help 

Ease Anxiety 

The above outlook and insecurities of a business owner are only heightened by the headlines. While you may not be able to fully settle anxieties or quiet the whispers of a possible recession, inflation hikes, wars, labor shortages, the list goes on; the reality is that the economy has both tailwinds and headwinds. 

A 2022 mid-year market review by Edelman Financial suggested that these negative headlines don’t often tell the full economic story. For example, it was reported that in the first half of 2022:

“Beneath the GDP contraction, consumer spending remained strong and nonfarm payroll gains averaged more than 480,000 per month, remaining the tightest job market in decades, driving massive wage gains.” 

Headlines don’t always focus on the good news. As an Exit Planning Advisor, having a firm grasp on data, both current and historical, can help put the state of the economy into perspective for your clients. Encourage them to follow the data, not their emotions.

Help Diversify 

Exit Planning Advisors can help their clients earn greater value from all of their collective assets. It would be ill-advised to let younger business owners assume that even by contributing the maximum amount to a 401(k) plan each year, for example, would give them enough to be financially independent at age 50. 

Encourage owners to diversify their assets and find additional passive income streams to more rapidly generate wealth that will sustain long-term. An advantage of working with an Exit Planning Advisor for a business owner is that they will build a team of advisors who can recommend different diversification approaches. These could include tax strategies, different kinds of insurance plans, or even establishing an estate plan, all to protect their wealth and their family in the future, even when the market rises and falls. 

Determine Lifestyle Plans

As is true with any business owner in any stage of their ownership cycle, if a younger owner desires to sell their business and retire, it is still crucial to determine what they want their post-exit life to look like.  The New York Times recently reported that millennials specifically dream of stopping work, or doing only fulfilling work, 15 years before their parents did. 

However, these aspirations are colliding with the reality that they will likely not be able to accumulate enough savings to do so. Despite the struggle and the means to save more, the 2022 Retirement Insights Survey from TIAA revealed that millennial workers, ages 25 – 39 have nearly 40% confidence in their ability to plan for retirement. This indicates that business owners in this age group will need to be approached about Exit Planning at an earlier stage. 

No matter the confidence level, the key for an Exit Planning Advisor is to really nail down what their plans for retirement actually are. Whether it’s the time to travel and spend with their family, the ability to volunteer more, or something else, knowing the dreams and lifestyle needs of a business owner aspiring to exit makes the difference in mapping out strategies to get them there. 

Start Now 

Having the knowledge that more and more business owners may want to exit sooner, or at the very least have it on their minds earlier, broadens the number of prospects you have for Exit Planning. Targeting business owners closer to the start of their business will only reap more positive benefits by lengthening the time you’ll spend with them doing Exit Planning work. 

While every Exit Planning engagement is different and has timelines driven by each owner’s exit goals, time binds all decisions. It is advisable to start planning for an exit at least five years in advance, but 10+ years is even better. Knowing that, as well as the fact that younger business owners want to retire, may broaden your opportunities as an advisor and help you shift focus. 

 

Conclusion: 

As mentioned, the Exit Planning Market has expanded (beyond Boomers) and the 2022 BEI Business Owner Survey, which will be released soon, will report on what else that means for advisors. Knowing that younger generations have increased interest in Exit Planning supplies ample opportunities for those involved in or looking to get started in the Exit Planning space. 

Once released, the BEI Business Owner Survey will dive deeper into these opportunities, what other trends have shifted, perceived obstacles, and more! 

To explore more Exit Planning content, start with diving deeper into:  

• Free, Exit Planning educational webinar 
• The Why We Plan podcast 
• Content shared on BEI social media 
• A conversation with the BEI Team – schedule a meeting!  

 

Cash Flow is complex, and it’s vital for business owners to understand it.  The complexity comes from the fact that it is fluid, flows in different directions, speeds, and can go off-course relatively easily.  Misunderstanding cash flow often leads to a reactionary relationship with it.

To complicate matters, business owners face cash flow on two fronts: in their business and in their family. Being aware of the interdependency between the two is vital for reaching one’s financial security and goals.  When a business owner can see how changes in their business’s cash flow directly impact their family’s lifestyle, it can be the awakening needed to make the necessary changes for an effective succession.

BEI defines a successful transition as one in which a business owner leaves their business on a desired date, for the amount they need, and to the successor of choice.  This success is achieved by addressing five critical elements:

1. Target Departure Date
2. Preliminary Financial Needs Analysis
3. Target Successor
4. Preliminary Business Valuation
5. Future Cash Flow Estimate

It is obvious that cash flow is a factor for the last element. However, understanding your business and personal cash flow is critical for all five elements.

Target Departure Date 

Starting with setting the target date, we know that this is likely to change and is heavily dependent on cash flow.  The owner could be ready to start the transition right away, while the cash flow of the business and family tells a different story.

It’s not until they have truly defined their cash flow needs that a date can become solidified.

Preliminary Financial Needs Analysis 

In doing the preliminary financial analysis, we discover the real need of the business owner during retirement.  When you start developing goals, you uncover unrealized cash flow needs.  While some desires, such as volunteering, are charitable in nature, often the cost of big-ticket items like travel aren’t considered and can’t be overlooked when determining need.

Frequently, the perks of being a business owner hides their family’s true burn rate, meaning the business owner and their family do not know what the owner’s real paycheck is.  Often the owner’s draw or reported salary is not one that fits with their current lifestyle. Whether big things like healthcare or a car, or little items such as cell phones, expenses can really add up quickly.

In the end, the business owner may find that their lifestyle is thousands of dollars more a month than their initial estimate. It’s this interdependence between business and personal cash flow that often is overlooked and causes a misdiagnosis of “The Asset Gap” or the amount the business owner needs to make in the sale of the business.

This misstep can really derail the whole Exit Plan.  Providing a business owner with a realistic lifestyle number can give them the confidence and clarity they need to move forward with the plan.

Identifying a Target Successor          

When identifying a successor, it’s important to realize that the two parties in the transaction both need to understand their cash flow, especially if it is an internal sale. When passing the torch to a family member or key employee, the current owner is hoping to leave a legacy and have the company carry on for generations to come. To best make this goal a reality, one needs to study how cash flow will change for the business under new ownership, and how owning the business will impact the successor’s personal cash flow.

We know the business cash flow is going to change starting with the elimination of the current owner’s income.  Now this may just be redirected, perhaps to the premium on the loan that funded the sale.  We need to understand if the business can take on this debt.

Purchasing the company also impacts the successor.  If they have the advantage of using the business to cover personal costs now, how does that impact personal cash flow and lifestyle?

On other hand, if the purchase decreases income even for a short period, is that offset by the potential future gains? If the successor has a firm grasp of their own cash flow, these questions can easily be answered and any concerns they may have are easily overcome.

Preliminary Business Valuation 

In calculating a preliminary valuation, it could be discovered that the profit from sale of the company will not fill the gap that exists for the owner.  It is at this point that business decisions must be made.  Will the owner work longer, change their lifestyle to save more, or try to build the company to increase its valuation?   If working longer is not an option, then you need to look at potential cash flow changes at the business or personal level.

Being able to look at what they can change such as adjusting the cost of goods sold, or determining how they can reinvest to grow the business, or even how a revised owner’s paycheck will impact both the business and their lifestyle, is essential to helping the owners make the decisions necessary to have a successful transition.

Future Cash Flow Estimate

Going hand in hand with the business valuation, estimating the future cash flow needs are also important. A professionally prepared cash flow forecast estimate helps advisors and business owners assess the likelihood of success of various exit paths. In any transition, the cash flow is used as a measure of the value of the purchase and establishes financial credibility for the Exit Plan.

It’s the forward-looking planning in the Exit Planning Process that will give your client the confidence in their Exit Plan and empower them to make the best decision for their financial future.

Conclusion

Coming full circle, we see how ensuring a proper understanding of both business and personal cash flow for the current owner and potential successor during the entire succession process provides confidence and clarity to the Exit Plan. Working to improve cash flow and staying on top of cash flow management while working on the Exit Plan gives your client one less thing to keep them up at night.

We will be hosting an informational webinar, Q & A style, on October 26, 2022 at 1pm ET on the topic of cash flow as it relates to Exit Planning. Save your spot today: Live Q&A: Cash Flow in an Exit Plan (exitplanning.com)