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Advisor Teams Are Crucial to Planning Success

Submitted by John Brown on Tue, 10/17/2017 - 9:00am
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In our last post, we discussed why having an Exit Planning process matters. Building off of that post, we will explain the importance of an Advisor Team to the planning process, discuss the role the Advisor Team has in the process, and examine why business owners might object to hiring and retaining an Advisor Team.

The Advisor Team: Your Expert Bench

In our first post in this series, we described the Advisor Team as the fuel of the Exit Planning flame: Each advisor, through his or her professional expertise, keeps the flame alive by making Exit Planning recommendations that give the owner the best chance to exit on his or her terms. However, it’s important to note that owners and their Exit Planners don’t use the Advisor Team’s services at all times. After all, once a fire is burning strongly and brightly, you wouldn't’t continue adding fuel to it, lest the fire burn out of control. So perhaps a more accurate metaphor would be to view your Advisor Team as an Expert Bench.

In sports, bench players relieve starting players in special situations, such as when the bench player excels over the starter in a specific circumstance. That’s precisely what your Advisor Team does. While the Exit Planner often takes the lead for the overarching Exit Planning Process, the Exit Planner knows when to insert his or her bench players to maximize performance and output, giving the team’s owner (i.e., the business owner) the best chance to succeed.

No single advisor has all of the professional skills needed to create an optimal Exit Plan. That’s why the most successful Exit Planners create strong Advisor Teams. Those Teams are key to the success and credibility of any Exit Planning effort.

Objections to the Advisor Team

When business owners first learn about the concept of an Advisor Team, many of them say, “Sounds too expensive,” or, “Why do I need all of these high-priced experts? I’ve done fine without them so far.” Let’s look at how business owners and advisors can power through the incorrect assumptions that an Advisor Team will be unnecessary or too expensive, in the context of assuring that owners can make the most informed decisions regarding the most important financial event of their lives.

Objection 1: “This isn’t necessary.”

Most business owners question the necessity of an Advisor Team for two reasons: (a) They’ve achieved success in creating the business without this Advisor Team, so they assume they can achieve success in leaving the business without the Advisor Team, and (b) their current advisors have served them well, making any new or additional advisors unnecessary. However, in the context of Exit Planning, those objections don’t hold water.

First, even though creating a business and leaving a business share some fundamental similarities (e.g., both require planning, both affect an owner’s personal wealth), the differences can be surprising. Leaving a business carries countless implications that affect more than just the business owner: For instance, an exiting business owner needs to consider whom he or she will transfer the business to; how taxes will affect the net sale price; how he or she can make sure that key employees don’t sabotage the sale; and how to parse monies from the sale among family, charity, investments, and self.

Second, though many businesses have highly accomplished advisors, those advisors often don’t have the depth or breadth of experience necessary to overcome the complexities of an Exit Plan. For instance, a company may have a CPA who’s skilled in legally minimizing taxes, but may not have an advisor who can create a key-employee incentive plan to assure that key employees help rather than hinder the sale process.

The Advisor Team overcomes these obstacles in three ways:

  • The experts on the Advisor Team understand their roles in the Exit Planning Process and know how to best contribute to the written Exit Plans Exit Planners create. Experts who understand their roles as specialists can focus on aspects of the Exit Plan relevant to them, streamlining the process while assuring that actions the business owner takes have minimal unintended consequences.
  • Experts on the Advisor Team often have expertise in areas in which the business owner’s existing advisors do not. For instance, an Advisor Team will consist of experts who can design stock bonus plans with 83(b) elections, create defined benefit plans, create and manage ESOPs, and make minority-discount determinations, among other decisions relevant to a successful Exit Plan.
  • The experts on the Advisor Team are only used as needed, spending no more time in the game than is necessary and focusing only on the things relevant to their specialties.

Objection 2: “This is too expensive.”

Cost is a common objection that’s best explained in four ways.

First, the cost of planning a business exit pales in comparison to the cost of exiting unprepared. Consider a sale to a third party: Successful third-party sales require accurate business valuations. Hiring a business valuator may cost $5,000 upfront, but the owner will have an accurate valuation. Not hiring a valuator means the business owner enters negotiations with little more than a guess about how much the company is worth. If that business owner thinks the company is worth $5 million (because that’s what the owner thinks he needs to retire comfortably), but the buyer’s valuation puts the value at $3 million, the owner has two options:

1. Sell for less than he needs for a comfortable retirement.

2. Pull the company out of the market, effectively tainting the marketplace.

In either case, the cost to the business owner is exponentially more than $5,000.

Second, Advisor Team experts have had their expertise and understanding of Exit Planning vetted by the Exit Planner, eliminating duplication of effort and allowing owners to secure accurate fee estimates before work begins.

Third, Advisor Team experts cost about as much as less-experienced advisors but can be several times more valuable. They are experts in their given fields, and have worked with owners in general and on business exits specifically. In short, business owners will not have to pay to bring Advisor Team experts up to speed.

Finally, owners’ Advisor Teams are managed by the Exit Planner, whose goal is to help business owners create and implement Exit Plans as efficiently and cost-effectively as possible

The Experience Factor

Necessity and cost are the two primary owner objections to an Advisor Team, and addressing those concerns head-on is critical. It’s just as important to consider the value Advisor Team experts deliver based on their long experience in representing closely held businesses and business owners. This often decades-long experience sets them apart from their peers because they understand owner and company challenges, whether it’s growing value, creating a management team, or transferring ownership. Advisor Team experts understand how owners think and react, positioning them to work vigorously toward owners’ goals.

Having an expert Advisor Team is critical to Exit Planning success. But how do business owners and advisors come across expert Advisor Teams? In our next post, we’ll talk about how to identify, recruit, educate, and work with members of the Advisor Team.

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