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Beginning the Exit Planning Journey

Submitted by John Brown on Fri, 01/05/2018 - 7:00am
Image of a Business Owner with Luggage Walking Down a Road at Sunrise

In our last article of 2017, we shared one of our most popular post of the year, Begin With the End in Mind When Exit Planning, which highlighted two key points:

  1. Business owners are interested in learning about (a) Exit Planning in general and (b) how to engage in it specifically.
  2. Business owners suspect that there’s a process to Exit Planning, one with a beginning, middle, and end. They understand the end: their successful exits. What they aren't clear about is the beginning.

How can business owners and advisors clarify what it takes to begin the Exit Planning Process?

The Two-Pronged Approach to Exit Planning

In the context of Exit Planning, it’s important for business owners and advisors to understand the two-pronged approach that successful Exit Planning Advisors take to Exit Planning. The first prong is the general prong, which focuses on a successful business exit for a business owner. The second prong is the specific prong, which focuses on the business owner’s goals (which in turn defines what makes the business exit successful). One such goal is the owner’s choice of successor. Exit Planning Advisors ask, “Does this owner want to transfer ownership within the family; sell to a third party, management, or Employee Stock Ownership Plan (ESOP); or keep the business ‘forever’?”

Each of these ownership transfers proceeds along a different Exit Path. In this series, we will highlight the advantages and disadvantages of each Path so that business owners and their advisors can accurately weigh their options.

For advisors, the ability to describe and compare Exit Paths is hugely valuable, and business owners should expect that their advisors can do so. Advisors do owners a disservice when they assume that they know which Exit Path owners want to take or assume that the owner’s interest in one path is a final decision. Consider BEI Member and M&A advisor Mike Boschetti’s thoughts about assumptions: “We are generally referred to owners as transaction advisors, so we could assume that a third-party sale is what the owner wants. But that’s not always the case.” Because Boschetti is trained in the Exit Planning Process, his outlook is broader and his toolbox deeper than an advisor untrained in the Exit Planning Process. He can help business owners exit on their terms, not on his as an M&A advisor.

Advisors who can think beyond their practice’s specialty tend to have the most success in working with business owners. We know this because most of the respondents to The BEI 2016 Business Owner Survey told us that they were considering multiple Exit Paths. Most of these owners will likely assume that an Exit Planning Advisor is only conversant in one of those Paths until and unless advisors prove them wrong. That’s why one of the purposes of this series of articles is to improve advisors’ ability to discuss all Exit Paths intelligently, to the benefit of their business-owning clients.

What Advisors Can Expect

The Exit Paths we’ll discuss in this series are:

  1. Transfer to management
  2. Sale to third party
  3. Transfer to family member(s)
  4. Sale to an ESOP
  5. Transferring ownership upon death

Articles in this series will cover the potential advantages and disadvantages of each Path. It’s important to realize that The BEI Seven Step Exit Planning Process can often minimize or eliminate the disadvantages of a particular Exit Path or successor. Many of BEI’s tools and processes are designed to do exactly that.

In our next article, we’ll describe the advantages to owners who choose first Exit Path: transferring the business to management.


Are you ready to help your clients exit?

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