"I've been thinking of selling my business. Can you help me?" Many advisors to business owners are hearing this question with increasing frequency. After all, most entrepreneurial owners have likely been thinking about exiting their businesses for years. When they finally decide to meet with an Exit Planning Advisor, their first question is usually about an Exit Path, "Who should my successor owner be?"
Business owners usually start the conversation looking for advice about which Exit Path (sale to management, a third party, children, or an Employee Stock Ownership Plan) is best for them. In offering advice, advisors respond with descriptions of the merits and demerits of each Exit Path. Advisors base their suggestions on their experiences with clients in similar situations. This approach is normal, but often (if not usually) wrong.
It is wrong because it jumps the gun: Neither owner nor advisor has a full understanding of the owner's goals. They spend time trying to answer questions rather than asking questions to determine what the owner wants and needs in exiting the business.
Contrast that approach with one founded on understanding owners' exit goals and aspirations for themselves and their businesses. The successor is but one of several of an owner's exit goals. There are several other universal exit goals, and the advisor's job is to help business owners understand and quantify all of them.
Uncover Business Owners' Universal Exit Goals
We suggest that advisors begin by asking three questions, each based on uncovering one of the three universal exit goals.
- After you leave the business, how much money do you want each year for the rest of your life and your spouse's life?
- When do you want to leave your business? And what does "leave" mean?
- Who should be the new owner of your company?
The business owner's foundational goal, these universal goals, and an owner's aspirational goals provide the framework for all planning and execution. Once clarified and prioritized, advisors can know when the business owner wishes to leave, how much money or income the owner needs from the business, and whom the owner wishes to be the successor owner. Exit Planning Advisors will then design the owner's Exit Plan to achieve these goals.
The benefits to business owners of this "Goals First" approach are obvious, but there are several benefits to advisors as well.
- Focusing initially on an owner's exit goals makes it clear to advisors that they see their roles as helping the owner, not themselves. Exit Planning Advisors are not selling a service or product. Their purpose is to help owners reach their goals. We call this owner-centric planning. This approach increases the advisor's credibility and an owner's trust in the advisor immediately.
- Spending time now on careful goal selection saves time and money later. Setting goals is the natural starting point for all Exit Planning and execution. Starting any other way means that, at some point, the advisor and the owner will have to back up and clarify the goals and aspirations the advisor initially overlooked.
- Advisors and their clients create the construct to include all of the owner's goals in plan creation. Choosing a successor is just one goal, not the only goal. In last week's article about the foundational goal, we saw that the choice of a successor is not the most important goal that the owner must achieve to have a successful exit. Post-exit financial security holds that place.
- Advisors and their clients focus on the planning and actions needed now. Once advisors establish the owner's foundational goal and the three universal goals, they may find that no Exit Path is capable today of taking the owner where he or she wants and needs to go. In that case, it is best to focus efforts on growing transferable value, and minimizing risk and income taxes, rather than on taking steps toward a sale or other transfer of ownership interest.
Once advisors help business owners establish their foundational and universal goals, they can move to their aspirational goals (the topic of next week's article). Foundational and universal goals are the framework for the Exit Plan advisors will design and execute for this owner. The business owner's aspirational goals dictate the Exit Path that is best for them.