Professional advisors know all too well that their business owner clients have a lot on their plates.
From managing employees to overseeing finances, there never seems to be enough time in their days. When it comes to Exit Planning, it’s easy for them to put it off, thinking they can deal with it later. Business advisors are faced with the familiar response: “I’m not ready to begin planning for my exit. I have other business tasks that take priority.”
However, as the Exit Planning Advisor, you must insist that Exit Planning is essential and should not be delayed.
The 2022 BEI Business Owner Survey reported that 35% of responding owners believe they don’t need to plan for their exit yet, with an additional 13% arguing they don’t have enough time, money, or energy to deal with Exit Planning.
So, what can you do to help your clients overcome this argument?
The 2022 BEI Business Owner Survey revealed a significant shift in the age of business owners who are considering Exit Planning, with 77% of respondents falling between the ages of 25-54. This highlights the opportunity for a larger market for Exit Planning beyond the baby boomer generation. Business owners are now thinking about their exits at an earlier age, providing a sizeable opportunity to conduct planning work:
“With the age of business owners shifting younger and the anticipated years of ownership getting longer, this presents a larger opportunity for advisors to do Exit Planning with their clients.” -2022 BEI Business Owner Survey
If owners are thinking about their exits earlier in their ownership lifecycle, advisors must consider what steps they are actually taking to plan for their eventual transition.
Discover ways to bridge the gap and eliminate the argument that younger owners have that it’s too early to plan with these four tips:
#1: Planning Should Begin While Business is Good
For younger business owners who may not be considering retirement or transition for another 10+ years, the urgency to commit to an Exit Plan may not seem pressing. However, creating a plan is crucial for the continued success of the business.
However, business projections and the life of the owner do not always go as planned. Exit Planning is vital for the continued success of a business. “A divorce, death, illness, disability, or split from a business partner can cause undue duress on a business and damage from which it may never recover,” Teri Parker said in a recent article on succession planning. “Planning allows for the orderly transition when the owner(s) are ready to sell – or are forced to sell because of an unforeseen event.”
Exit Planning should actually begin in the midst of the business running smoothly. If the planning begins as a result of a crisis, the outcome may actually be more detrimental than anything. By starting small, such as crafting business continuity instructions or a Buy-Sell Agreement, business owners may begin to see the importance of planning early.
#2: Exit Plans are Meant to Evolve
Exit Planning is not a one-time task, but rather a continuous process that should be revisited often. As the business grows and changes over time, the Exit Plan should also be adjusted to reflect these changes.
Creating actionable steps to include reasonable timelines and deadlines over a period of time ensures owners might reach the ultimate exit goal: leaving their business on their terms.
Coming up with a comprehensive, written Exit Plan often scares owners because of the misconception that the document can’t be changed. Though there is an increase of young business owners talking to professional advisors about planning, creating the written document remains at only 20%.
In addition to the flexibility of an Exit Plan, it’s your job to inform the business owner of the key elements of a written Exit Plan, as well as the main benefits of getting the document in writing:
- Increased clarity, accountability, and opportunity for success
- Maintaining control as the business grows and changes
- Minimizing cost and time as business value grows
#3: More Time Increases the Likelihood to Exceed Exit Goals & Build Value
As an advisor, you are likely aware that many business owners opt for a phase-based approach to planning. With this in mind, it must be emphasized that each phase requires a dedicated amount of time, and in the long-term, more is gained when there is more time allotted to grow business value.
Consider sharing with your owner clients the standard timeframe of each of the common phases of the Exit Planning process:
- Exit Plan Design & Choosing an Exit Path: 90 days – 1 year
- Closing the Value Gap, or, the difference between the actual value of the company and what the owner needs to exit: 5 – 10 years
- Tax planning & implementation: 3 – 10 years
- Transfer to children or employees: 3 – 10 years
- Selling the business to a third-party: At least one year
Every owner’s exit time frame is contingent on both the owner’s goals and the business’ readiness for transition. Today, few businesses are sufficiently prepared to transfer without a significant amount of time spent with an Exit Planning Advisor to build transferable business value, minimize taxes, and achieve the goals set when the owners first began the business.
The amount of time doesn’t have to be posed as a “big and scary number,” but instead, positioned as a major benefit in terms of having the time to grow transferable business value.
#4: Take a Holistic Approach to Planning
Many business owners start their own companies as a means to make the most of their own time. In a lot of ways, doesn’t it seem that they end up having less? Fundamentally, Exit Planning is a learned concept for most owners. When owners are more caught up in the logistics and the dynamics of business, they may not be able to grasp the necessity to plan and begin early.
Exit Planning is not just about finances, it’s also about the overall well-being of the business, the owner, and their family. Advisors should consider the emotional and psychological aspect of Exit Planning and help business owners navigate the transition process. After all, the business exit is the most important financial event of their professional lives.
Working backwards with owners to determine a business exit strategy and a timeline will ultimately earn owners the freedom they desire: the freedom to sell or transfer their business when they want, for the amount they want, and for the successor of their choice.
The Bottom Line:
The idea that it is too early to plan is just simply not true.
In the words of Shellye Archambeau, one of tech’s first Black female CEOs, Board Director, and Author: “Start today. Work hard, make trade-offs, and strategize towards your goals. You can start these practices at any time in your life or you can restart them if you have let them go over the years. It’s never too late or too early to start working toward a goal.”
BEI is dedicated to assisting advisors in their mission to help business owner clients reach their goals. Schedule a meeting with us at the link below and we can discuss strategies to kick start conversations with clients and urge them to begin Exit Planning sooner rather than later.
