As we step into the new year, advisors are poised to take their client relationships to new heights by becoming not just financial guides or legal experts, but trusted partners in every stage of their clients’ business journeys. One strategic approach to achieving this goal is to incorporate more comprehensive planning services into your advisory practice to help your owner clients with what they need most.

The Trusted Advisor Vision for 2024

In 2024, the role of an advisor extends beyond traditional financial planning. A trusted advisor is someone who is deeply invested in their clients’ success, understanding their unique needs, challenges, and aspirations. The goal is to forge a lasting relationship built on mutual trust and a shared commitment to achieving long-term business objectives. Ultimately, advisors know what steps need to be taken in order to grow and protect business value so that owners are in an opportune position to sell or transition from their business on their own terms when the time comes. 

The Significance of Exit Planning

Exit Planning is a comprehensive strategy aimed at helping business owners successfully transition out of their businesses. As a trusted advisor, integrating Exit Planning into your practice allows you to guide clients through the complex process of selling or transferring their businesses. By addressing critical aspects such as valuation, tax implications, and succession planning, you position yourself as an indispensable partner in their business journey.

For years, BEI has shared several ways for advisors to work with owners on a crucial aspect of the Exit Planning Process: increasing business value. Time and time again, advisors find that emphasizing the importance of transferable value – what a business is worth to a buyer without the owner’s presence and involvement in the business – is what drives a successful exit. Transferable vale can be increased by having strong value drivers, including: 

• Next-Level Management
• Operating Systems That Improve the Sustainability of Cash Flows
• Diversified Customer Base
• Proven Growth Strategy
• Recurring Revenue That Is Sustainable and Resistant to Commoditization
• Good and Improving Cash Flow
• Demonstrated Scalability
• Competitive Advantage
• Financial Foresight and Controls

Strong Value Drivers are what make a company a desirable acquisition to buyers as they inherently contribute to cash flow. However, in the years working with Exit Planning advisors in a variety of different speciality areas, we’ve concluded that advisors share a common goal of helping owners improve transferable value – regardless of the owner’s exit timeline or if the advisor is specifically helping craft an Exit Plan. 

Exit Planning at its core begins with determining an owner’s pressing goals and objectives and therefore progresses through each stage and phase with the owner at the forefront. However, depending on area of expertise and clientele demographics, the advisory services provided at your practice might need a more holistic approach vs. a beginning-to-end Exit Planning engagement. 

Owner-Based Planning: A Holistic Approach

Owner-Based Planning, BEI’s latest endeavor, takes a holistic approach by considering the personal and professional goals of the business owner. This involves aligning the business strategy with the owner’s financial and lifestyle objectives. By understanding your client’s vision for their future, you can tailor your advice to not only enhance the value of their business but also ensure that the transition aligns with their broader life goals.

In order to focus on the goals of the owner, the advisor must showcase effective strategies and tools to engage owners in planning, even if they are not solely focused on Exit Planning. BEI’s Owner-Based Planning aims to enable advisors to implement core service offerings more effectively while assisting the owners in initiating the planning process. 

The Resolution for Success in Your Advisory Practice

Adding Exit Planning or Owner-Based Planning to your advisory practice is more than just a strategic move—it’s a resolution to elevate your client relationships and contribute significantly to their success. Here’s how:

• Proactive Relationship Building: Engaging in Exit Planning allows you to start discussions about long-term goals early in the client relationship. This proactive approach demonstrates your commitment to their success, fostering a deeper and more meaningful partnership.
• Comprehensive Guidance: By offering comprehensive planning services, you become the go-to resource for all aspects of a business transition. From financial implications to personal aspirations, your guidance becomes indispensable in navigating the complexities of change.
• Value-Added Services: Incorporating these planning strategies into your practice positions you as a provider of value-added services. Your clients will appreciate the foresight and dedication to their success, solidifying your role as a trusted advisor.
• Overcoming Challenges: While there are a plethora of challenges an advisor might face or interpret when considering Exit Planning or Owner-Based Planning, many can be overcome with a mindset shift and a dedication to career growth. From a lack of budget and bandwidth to fee aversion and learning curves, many obstacles can be overcome with the right strategies and resources. By addressing budget concerns, simplifying the process, and emphasizing the benefits, advisors can successfully add Exit Planning or Owner-Based Planning to their practice and provide valuable services to business owners seeking to boost business value and  transition their business effectively. 

As we embrace 2024, let this be the year your advisory practice evolves into a dynamic force, guiding clients not just through financial decisions but through transformative business transitions. Exit Planning and Owner-Based Planning are not just tools; they are the building blocks of lasting, impactful relationships that transcend the traditional advisor-client dynamic. Elevate your practice, elevate your clients, and let success be the common resolution we strive for in the coming year.

This blog shares an insightful roundup of some of the most impactful BEI webinar presentations of 2023. As the digital landscape continues to evolve and as advisors steadily place a heavy emphasis on education, webinars have been a crucial medium for knowledge dissemination, industry best practices, and professional development.  

Our team has sifted through the vast list of virtual presentations hosted each week of the last year, to share the webinars that not only captured audiences with engaging content, but also provided valuable perspectives on emerging trends, cutting-edge technologies, and thought-provoking discussions.  

In no particular order, check out the following presentations that made their mark in 2023, offering a glimpse into the future of business planning and fostering a deeper understanding of the dynamic world of professional advisory services.  

Business Exit Planning: Help Clients Keep More of Their Sale Proceeds with MetLife  

This presentation hosted by BEI Strategic Partners, MetLife, discusses the challenges and expenses associated with selling a business, highlighting the contrasting emotions of excitement for potential profits, and concerns over the accompanying tax bill. The team at MetLife dives into a new, tax-advantaged solution for business sales: structured installment sales.  

Watch the recording here:

Find Your Way After Exit Day with Charis Santillie & Jim Carlisle  

This impactful webinar by BEI Member Jim Carlisle, and Life Transition Coach Charis Santillie, discusses the emotional challenge of transitioning from business ownership to designing a desirable post-sale life. The presentation provides tips and guidance on navigating your clients through the emotional aspects of life after business, drawing on Charis Santillie’s expertise as a Certified Fearless Living® Coach and Positive Intelligence® Trainer with over twenty years of entrepreneurial experience.  

Watch the recording here:

Live Demo: Planning Software for Business Advisors with BEI CEO Jared Johnson  

This webinar shares several exciting developments at BEI that took place over the last year, inviting viewers for a sneak peek into the latest updates to the BEI PlanIt software for advisors. The live demonstration shares glimpses of the new user interface and enhanced functionality, sharing how it can be leveraged to streamline work for advisors with clients and other advisors.  

Watch the recording here:

To take part in an upcoming webinar similar in nature, “Maximize Your Planning Practice’s Potential Ahead of 2024” on December 20^th at 1pm ET, register at the link below: https://beiwp.itulbuild.com/event/maximize-your-planning-practices-potential-ahead-of-2024/ 

How to Grow Your Practice Using Advanced Trust Planning with Business and Legal Advisors  

This webinar with BEI Strategic Alliance, Business and Legal Advisors, is hosted by Stuart H. Sorkin, a seasoned expert with 40+ years in the business advisory industry. Sorkin, a business consultant and transactional attorney uses this presentation to dive into advanced trust planning and how it plays a role in Exit Planning. Tune in to the recording at the link below to hear details on the two basic types of trusts (revocable and irrevocable), their purposes, funding alternatives, and more, offering valuable insights for growing your planning practice.  

Watch the recording here:

Level Up With BEI: Pricing Strategies for Your Services with BEI Practice Development Specialist, Doug Easton

This presentation hosted by the BEI team was developed to help assist with one of our most asked questions: “How do I charge fees for my planning services?”  

This presentation addresses this common advisor challenge, sharing tools available to determine appropriate fees, how to propose methods to clients, establishing a competitive fee structure, showcasing ROI and more, offering valuable takeaways for advisors in navigating the complexities of pricing.  

Watch the Recording here:

Conclusion

This compilation of the top BEI webinar presentations of 2023 dives into a diverse array of subjects that have shaped the industry and sparked planning conversations throughout the year. From groundbreaking discussions on structured installments and trust planning to insightful analysis of fee structures and owner’s post-exit lives, these webinars have not only showcased the expertise of thought leaders but have also provided crucial takeaways for personal and professional growth. We’d welcome the opportunity to speak with you more about these concepts and how you can use them to get more strategic meetings on the calendar with clients in 2024. 

Be sure to keep an eye on our webinar calendar, as it is frequently being revisited to provide our network with impactful presentations from guests and our team! Check up the lineup for the rest of the year here: https://beiwp.itulbuild.com/events/  

In the dynamic landscape of business, the art of Exit Planning emerges as a pivotal skill for entrepreneurs and advisors alike. At the heart of this strategic endeavor lies the power of goal setting, a tool that transcends mere planning and becomes a compass for navigating the uncertain waters of business transitions. 

In our experience assisting business professionals and their clients in sculpting their exit strategies, we’ve identified goal setting as the cornerstone of a successful journey. This post aims to explore the profound impact of clear, actionable goals from the perspectives of both business owners and advisors, highlighting its crucial role in charting the course to Exit Planning success.

The Importance of Setting Goals for Business Owners

Setting goals is an integral part of the Exit Planning Process, serving as more than just a task list. Talking with owners about their goals and objectives has stood as the first step in the Exit Planning framework that BEI has been using since its inception. It’s a strategic maneuver, critical for business owners embarking on this journey.

Establishing Targets: Defining personal, family, and business success criteria helps business owners understand the ‘why’ behind their exit, illuminating the ‘how.’ This clarity propels owners on a path filled with purpose and direction. For instance, a business owner aiming to secure a comfortable retirement or to ensure the business’s legacy continues under new leadership will require the use of different strategies and approaches.

Road Map Creation: A well-defined goal acts as a beacon, guiding business owners through the complexities of Exit Planning. It transforms anxiety into actionable steps, laying out a systematic approach to reach defined objectives. For example, a roadmap might include milestones such as identifying potential buyers, optimizing business value, or developing a succession plan.

Tracking Progress: Goals offer a tangible measure of progress. They help owners gauge where they stand in their exit journey, offering motivation during prosperous times and a re-focus during challenging phases. This could involve regular assessments of business valuation or progress in key areas such as customer diversification or operational improvements.

Resolving Conflicts: Planning for an exit can introduce a variety of conflicts, from family dynamics to differing visions among business partners. Early identification and resolution of these conflicts significantly enhance the likelihood of a harmonious and successful exit.

Enhanced Decision Making: When business owners set clear goals, they are better equipped to make informed decisions. This becomes particularly important in evaluating offers for their business. A clear understanding of their goals allows them to assess whether a potential deal aligns with their objectives, beyond just the financial aspects.

Preparation for Unforeseen Circumstances: The business world is full of uncertainties. Effective goal setting helps owners prepare for unforeseen circumstances, such as market downturns, changes in industry regulations, or unexpected personal events. By having a well-structured Exit Plan, owners can adapt to these changes without losing sight of their end goals.

The Advantages for Advisors in Goal Setting

Advisors play an integral role in the Exit Planning Process, acting as both strategists and facilitators. 

Advisor’s Role: Advisors help shape the Exit Plan to align with the owner’s aspirations, acting as a sounding board and providing strategic insights. Their involvement is instrumental in crafting a tailored exit strategy, ensuring that it resonates with the owner’s personal and business goals.

Building Relationships: Through the goal-setting process, advisors forge deeper relationships with their clients. This evolution from transactional interactions to trusted partnerships is vital, as advisors become indispensable in guiding their clients through the intricacies of Exit Planning.

Team Coordination: Advisors often lead a team of professionals – including CPAs, lawyers, and estate planners – each playing a crucial role in the exit strategy. This coordination fosters trust and cements the advisor’s position as a central figure in the process.

Creating a Comprehensive Approach: Advisors, by understanding the goals of the business owner, can create a comprehensive Exit Plan that addresses all aspects of the transition, including financial, legal, and emotional considerations. This holistic approach ensures that no critical element is overlooked.

Anticipating Challenges and Opportunities: Advisors can use the goal-setting framework to anticipate potential challenges and identify opportunities. For example, understanding the business owner’s timeline for exit can help in strategizing for market conditions or tax implications.

Practical Insights from Surveys and Research

Our most recent survey of business owners revealed a critical insight: while the majority have exit goals, only a fraction have translated these into actionable plans. This gap underscores the need for precise, concrete goals. 

Empirical Evidence of Goal Setting Benefits: Further research into goal setting in business contexts demonstrates that businesses with clearly defined goals show better performance metrics, such as revenue growth and market share expansion, compared to those without clear goals.

Incorporating Flexibility in Goals: While the importance of setting clear, concrete goals is undeniable, it’s equally important to build flexibility into these goals. The business environment is constantly evolving, and goals need to be adaptable to changing circumstances.

Types of Goals in Exit Planning

Exit Planning is diverse, encompassing various goals tailored to individual needs.

Foundational Goals: The primary goal is often securing financial independence. This serves as the financial bedrock for other aspirations, ensuring a stable transition post-exit.

Universal Goals: These revolve around key questions like ‘how much,’ ‘when,’ and ‘to whom.’ Addressing financial needs, timing, and successor planning, these elements are fundamental to any exit strategy.

Values-Based Goals: Values-based goals align the exit strategy with the owner’s ethos and legacy aspirations. These goals add a personal dimension to Exit Planning.

Expanding on Values-Based Goals: Values-based goals often include maintaining company culture, ensuring employee welfare, and contributing to the community. These goals reflect the deeper intentions of the business owner and can significantly influence the choice of successor or the method of exit.

Balancing Short-Term and Long-Term Goals: A successful exit strategy involves balancing short-term objectives with long-term aspirations. While immediate goals may focus on increasing business valuation or streamlining operations, long-term goals could involve maintaining a legacy or ensuring ongoing support for existing staff.

The Bottom Line:

The journey of Exit Planning is nuanced and multifaceted, with goal setting as its core. For business owners and advisors, understanding and implementing this step is crucial for a successful transition. We encourage our readers to embrace this process, starting with defining clear, actionable goals. Connect with us on LinkedIn, Facebook, and Twitter for more insights and updates!

In summary, whether you are a business owner preparing for a future transition, or an advisor assisting in this process, the art of setting clear, well-defined, and adaptable goals cannot be overstated. It’s not just about planning for an exit; it’s about setting the stage for a new beginning that honors past efforts while paving the way for future success.

In August of 2022, Space Monkey Partners presented at the BEI National Conference, and over the past year, the team at Space Monkey Partners have had the honor of collaborating with Exit Planning Advisors to test and refine strategies for finding, engaging, and converting business owners who require exceptional Exit Planning services. 

Here are some key insights they shared with us from working with several advisors in the BEI Network over the last year: 

Add Personality to Your Messaging

Clients not only want to know what you do but also if they will like you. Our message testing has shown that lead results are the most successful when advisors share their personality with business owners who are contemplating selling their business. Finance is a relational business, and people want to connect, so don’t hesitate to show more about yourself! 

Make the Client the Hero

Although it might seem contradictory to the first learning, making your client the hero in your messaging always fosters stronger relationships. Avoid being the person with a dynamic personality that draws people in, but then only talks about themselves. By focusing your message on solving the customer’s problems, they feel heard, understood, and are more likely to take the desired action. 

It’s Early!

Many business owners are still unaware or don’t understand Exit Planning, so you are dealing with a mostly unaware audience. Embrace the fact that you need to educate them and be patient. We recommend starting with “low hanging fruit,” by targeting those closer to selling (1-2 years away) rather than your ideal clients (5-10 years away). Our top-performing search term was “sell my business,” indicating that those closer to a sale or transition are more willing to take action.

Position Yourself as the Expert to Build Trust

Given longer lead times, you can build trust over time by creating educational content about Exit Planning. Utilize videos, write articles for trade publications, and engage on LinkedIn to stay top of mind. AI-generated content can help get you started, and you can add your personal touch to it. Additionally, considering a BEI Growth or Engagement License designed to help with content creation and distribution is another way to leverage your marketing efforts and increase brand awareness not only about you and your firm, but about the Exit Planning services you provide.

Give Them an Easy Yes

During our tests, we tried various calls to action, including “schedule a consultation,” “take an assessment,” and “download a case study.” The case study required the least commitment but yielded the highest conversion for capturing email addresses. The lower the involvement, the stronger the conversion at this stage.

Build Awareness Together

Consider collaborating on an awareness campaign or advertising venture with BEI and other Members. Pool funds or host a webinar with panelists from different specialties. Together, we can make Exit Planning a norm for all business owners, just as insurance is now a standard practice.

Maximize Your Relationships

Business owners know other business owners. Discover what your clients enjoy doing and invite them to bring a friend along. Overcome your fear of selling and be authentic. Your offerings are valuable, and people will recognize that and want to share it with their friends.

We are grateful for the opportunity to clarify and test messaging with amazing Exit Planning Advisors. We encourage you to continue your exceptional work for your clients, and we’ll keep sharing critical insights for clarifying messaging and generating leads.

Our favorite quote was from Joe Sweeney at Cornerstone Wealth, who told a partner firm:

“Walk, Trot, Run, Sprint, Exhaust Yourself to run down Space Monkey. They will, full stop, change your life, save you hundreds of hours with an amazing experience along the way, enjoying the relationship and heart of very special people.”

We feel the same about you, Joe!

If you haven’t fine-tuned your story or want to develop a high-impact, lead generating campaign for your professional practice, feel free to reach out to Keith Lauver at ke***@sp*********.partners. 

To learn more about Space Monkey Partners, their work, and how working with BEI Members have provided impactful marketing insights for advisors like you, watch the recording of their recent webinar:

For many business owners, the decision to exit their business is a significant milestone in their entrepreneurial journey. Whether it’s retiring, selling the company, or passing it on to the next generation, the post-exit phase is both exciting and challenging. Business owners often have a vision of what they want their life to be like after the exit, however realizing that vision and taking the steps necessary to ensure it happens takes careful planning and execution. This is where advisors play a pivotal role in helping business owners envision and achieve their post-business exit lifestyle, not just for themselves, but for their family and the legacy of their business. 

Understanding the Business Owner’s Vision 

The first step for advisors is to understand the business owner’s vision for life after the exit. This vision goes beyond financial goals and includes aspects such as retirement plans, lifestyle choices, and the legacy they want to leave behind. Advisors must engage in open, empathetic conversations to gain insights into the business owner’s personal aspirations, family dynamics, and the role the business has played in their life. The more trust you can build with your owner clients early in an engagement, the more confident they will be in you to guide them to their post-exit goals.  

Balancing Personal and Financial Goals 

Envisioning a post-business exit lifestyle involves a delicate balance between personal and financial goals. Advisors play a critical role in helping business owners strike this balance. They can assist in creating a comprehensive plan that ensures the business owner’s personal aspirations are aligned with their financial resources, because oftentimes there is a large asset gap that must be addressed in the time before the exit.  This may involve evaluating investment strategies, retirement savings, and estate planning to make sure the business value is at a place where the transition can be executed as smoothly as possible.  

Strategic Timing and Transition Planning 

One of the most important aspects of achieving a successful post-business exit lifestyle is strategic timing and transition planning. Advisors can help business owners determine when it is the right time to exit and how to ensure a smooth transition. This may involve preparing the business for sale, identifying the right successor, or developing a succession plan that aligns with the owner’s vision and the long-term well-being of the company. No matter the age or place in the ownership lifecycle that your client is in, strategic planning takes time to produce a profitable outcome.  

Risk Mitigation and Contingency Planning 

In the pursuit of their post-exit lifestyle, business owners face various risks. Advisors must identify these risks and help clients develop strategies for mitigating them. This can include contingency or continuity plans for unexpected events, diversifying investments, and optimizing tax strategies to protect the wealth accumulated during their entrepreneurial journey. By proactively addressing potential obstacles, advisors help secure the business owner’s post-exit future. 

Family Dynamics and Wealth Transition 

For many business owners, ensuring the well-being of their family is a top priority. Advisors can play a crucial role in facilitating discussions about wealth transition and inheritance. They can help business owners establish family governance structures, educate heirs about financial matters, and promote responsible stewardship of the family’s wealth. Ensuring a smooth transition of wealth to the next generation is an essential part of creating a lasting legacy. 

Maintaining the Business Legacy 

Beyond personal and family goals, many business owners are concerned about the legacy of their company. Advisors can help them preserve the legacy by identifying potential buyers or successors who share the same values and vision. They can also assist in the development of a strategic plan that ensures the business’s continued success after the owner’s exit, thus safeguarding its legacy for years to come. 

Psychological Support and Emotional Preparedness 

Envisioning a post-exit lifestyle is not just about numbers and strategies; it’s also a deeply personal and emotional journey. Owners need psychological support and guidance during this transition. Advisors – either because of their knowledge or with the support of their advisor team – can help clients manage the emotional challenges associated with letting go of a business they’ve built and nurtured, helping them navigate the sense of purpose and identity that often comes with being a business owner. 

Monitoring and Adaptation 

The journey toward a desirable post-business exit lifestyle is not a one-time event but an ongoing process. Advisors should regularly monitor and adapt an owner’s plan as circumstances change. This includes keeping abreast of shifting market conditions, revisiting investment strategies, and ensuring the client’s goals remain aligned with their evolving vision. 

Conclusion 

The role of an advisor in helping business owner clients envision their post-business exit lifestyle cannot be understated. Beyond mere financial planning, advisors serve as navigators, strategists, and visionaries. They are essential in guiding business owners towards a post-exit life that aligns with their personal aspirations, family well-being, and the legacy of their business. 

By engaging in open and empathetic conversations, striking a balance between personal and financial goals, and addressing risks and contingencies, advisors provide invaluable assistance to business owners as they embark on this significant life transition. The ultimate goal is to create a harmonious post-exit lifestyle that allows the business owner to enjoy the fruits of their labor, provide for their family, and ensure that their business legacy endures for generations to come. In this way, advisors play a crucial role in shaping the future for both the business owner and their business itself. 

For more conversation about this topic, watch a recent webinar recording by BEI Member Jim Carlisle and Charis Santille titled, “Find Their Way After Exit Day.”

As business owners approach the inevitable crossroads of exiting their companies, they are faced with a multitude of options. One compelling strategy that has gained popularity in recent years is the Employee Stock Ownership Plan (ESOP). ESOPs offer a unique path for business owners to transition out of their companies while providing employees with a stake in the business’s success.

In this blog, and in the spirit of Employee Ownership Month this October, we will explore how ESOPs work, the benefits and challenges they present to business owners, and how advisors should present ESOPs as an Exit Planning solution.

How ESOPs Work

An Employee Stock Ownership Plan (ESOP) is a qualified retirement plan that effectively allows employees to become partial owners of the company. Here’s a simplified overview of how ESOPs typically work:

• Establishing the ESOP: After careful planning, a company establishes an ESOP trust, which holds shares of the company’s stock on behalf of employees. To fund the plan, shareholders either sell stock, contribute shares directly, or the company will contribute cash (which can be used to purchase shares) 
• Employee Participation: Most full-time eligible employees participate in the ESOP. Certain exclusions can be made for union members and similar defined classes. Over time, employees accrue shares in the plan. They do not pay out-of-pocket for these allocations.
• Valuation: An independent appraiser determines the value of the company’s shares annually. This valuation process ensures that employees’ ESOP accounts reflect the fair market value of the shares they own.
• Employee Benefit: Share allocations vest over time, like a 410(k).  Upon retirement or separation from the company, a participant’s vested shares are sold back to the company at a current valuation. They can pocket those gains or roll the proceeds into another qualified retirement plan.

Here’s more detailed information on how an ESOP works.

Benefits of ESOPs for Business Owners

• Ownership Transition: ESOPs can provide an orderly and gradual transition of ownership, allowing business owners to step back while retaining equity and/or a leadership role with the company. Post-transaction, an employee-owned company’s board of directors maintains operational control. Companies remain independent.
• Tax Advantages: ESOP transactions can offer tax benefits to both the selling shareholder and the company itself. In many cases, a shareholder’s capital gains from selling equity to the ESOP can be deferred and potentially eliminated altogether. Companies can receive income tax deductions for contributions and can even become tax-free entities.
• Employee Engagement & Incentives: ESOPs can boost employee morale and productivity, as employees have a financial stake in the company’s success. This can lead to improved company performance and profitability. When employees gain a unique retirement benefit in the form of stock allocations, the employee-owned company as a whole tends to outperform their peers.
• Preservation of Legacy: Business owners who have poured their heart and soul into their company can use an ESOP to preserve their legacy and ensure the company’s continuation.
• Upside & Flexibility: Unlike most business transitions, ESOPs offer continuity of leadership and opportunities for shareholders to sell partial holders and get a second “bite at the apple.” An employee-owned company can also be sold to a third-party. Additionally, when ESOPs prosper, that upside is available to all stakeholders.

To learn more about upside potential and flexibility in ESOPs, watch the recent webinar recording hosted by David Blauzvern of CSG Partners.

Challenges of ESOPs for Business Owners

• Complexity: Like an M&A transaction, ESOPs have unique intricacies. Business owners should fully appreciate the ESOP process, and will likely rely heavily on expert advice and professional guidance.
• Structured Transaction: Plan formations and ongoing management are regulated by the US Department of Labor, based on rules set by the IRS. As a result, a regimented transaction process and diligent plan oversight are necessary.
• Initial Cost: The expense of forming an ESOP can be on par with an M&A transaction. Legal, valuation, and trustee fees all contribute to the overall cost.
• Sale Price: A trustee cannot offer more than fair market value for company stock. That’s typically in line with what a financial buyer could pay. This might be seen as a negative to owners who believe they can get more by selling outright to a strategic buyer.
• Ongoing Commitment & Maintenance: If business owners don’t already have a strong management team in place, their continued engagement with the company may be necessary post-transaction. Further, since an ESOP is a ERISA-authorized qualified retirement plan, trustee oversight of plans and annual company valuations are required.

Presenting ESOPs as an Exit Planning Solution

For professional advisors and business consultants, effectively presenting ESOPs as an Exit Planning solution requires a thorough understanding of the client’s goals and business dynamics. Here are some key steps to consider:

1. Assessment: Begin by assessing the client’s business, financial situation, and long-term objectives. Determine whether an ESOP aligns with their ultimate goals.
2. Education: Educate the client about ESOPs, explaining how they work, their benefits, and potential challenges. Provide case studies and examples to illustrate real-world applications.
3. Valuation: Help the client understand the valuation process and how it impacts the ESOP transaction. Highlight the potential tax advantages of selling to an ESOP.
4. Implementation: Map out a formal ESOP process with the client. Steps may include determining feasibility, selecting an optimal structure, securing third-party financing, engaging an independent trustee, establishing an the employee trust, negotiating a transaction, and finalizing plan documents. ESOP specialists may be needed for some, if not all these steps. With that in mind, assist the client in the selection of third-party professionals.
5. Employee Communication: Assist with the plan rollout process and encourage ongoing communication with employees to ensure they understand the ESOP’s benefits and their role in the plan’s success.
6. Long-Term Strategy: If the transaction does not represent a complete business exit for your client, work with them to develop a long-term strategy for the business post-ESOP, addressing their continued involvement and ultimately, their transition out.

How BEI ESOP Partners Can Help: CSG Partners

At BEI, we want advisors to be able to leverage your expertise, tools and industry partnerships to help their business owners thrive. Knowing that advisors appreciate the value of an extensive Exit Planning toolkit, we urge advisors interested in ESOPs as a planning solution to connect with our partners, including CSG Partners.

BEI supports CSG and their work in the ESOP market because they have guided hundreds of companies nationwide through the employee ownership process – from feasibility studies to financing and completed transactions. CSG Partners focuses on education geared towards advisors like you to help you honor and strengthen both your client-advisor relationship and your client’s perception of their Exit Planning experience.

If you are an advisor looking to adopt ESOPs to your toolkit, get connected with CSG Partners in a variety of ways:

• Listen to a recent presentation by CSG Partners Vice President, David Blauzvern, titled, “ESOPs: When Flexibility and Upside Matter Most,” linked HERE.
• Tune in for a short interview of David Blauzvern on BEI’s Why We Plan podcast.
• Schedule a meeting directly with CSG HERE.

Conclusion

Employee stock ownership plans (ESOPs) offer a compelling Exit Planning solution for business owners looking to transition out of their companies while preserving their legacy and providing employees with a stake in the company’s success. By understanding how ESOPs work, recognizing their benefits and challenges, and presenting them effectively to clients, advisors can help business owners make informed decisions about their exit strategy, ultimately contributing to successful transitions and continued business prosperity.