As our Exit Planning practices mature, more and more of our business-owning clients start thinking about or begin transitioning out of their businesses. We want to help, and they need our help, but we know that a successful exit requires more than a two-person team. We need to form a next-level group of advisors, but whom do we recruit? Which qualities, experience, and training are we looking for?
I believe that there are three broad categories to consider: 1) personality traits, 2) experience, and 3) understanding of the Exit Planning Process.
- Team Player. Your teammates do not have to agree with all of the recommendations you or other advisors make, but they do need to be willing to work together to create a plan that achieves all of the business owner’s goals and aspirations. The owner’s goals, not the advisor’s personal interests, drive the planning and recommendations.
- Responsive. An important element of every Exit Plan is the timeline that all parties agree to for plan implementation. A single laggard advisor can hold up the entire planning process for weeks or months. Advisors who fail to meet deadlines are subject to speedy replacement.
Look for the most capable, experienced advisors in their respective professions. Specifically, you are looking for advisors who work with business owners on a wide variety of issues daily.
Understanding of the Exit Planning Process
Each advisor on your Advisor Team must understand and support the comprehensive Exit Planning Process that you are leading or must be willing to learn. The Exit Plan or Road Map that you will create is one that all members of your Advisor Team will follow.
Exit Planning Issues and Appropriate Advisors
Let’s look at the types of advisors you will recruit for the many issues included in a comprehensive Exit Plan.
- Issue 1: Professional Determinations. Exit Planning is founded on a professionally accurate determination of the following:
- A business owner’s income retirement needs as of the anticipated departure date.
- The degree to which an owner’s income retirement needs are likely to be met by non-business assets.
- The amount the transfer of the owner’s business must generate to make up any shortfall.
This determination should account for various assumptions about inflation, rate of investment return, life expectancy, and so on.
Possible Advisors: Financial planner, business-valuation advisor.
- Issue 2: Key-Employee Retention. At least one member of the team must understand how critical finding, training, motivating, and keeping key employees is to the success of your client’s exit. This advisor should be able to design an incentive plan (either ownership- or cash-based) that can increase the value of the business while it handcuffs key employees to the business on a long-term basis.
Possible Advisors: Business attorney, financial-services professional, compensation expert.
- Issue 3: Management Capability and Effectiveness. There may be a need to evaluate and train existing management or find replacement management.
Possible Advisors: Business consultant, succession planner.
- Issue 4: Business Growth. One team member must be capable of accurately assessing a company’s current business practices to create growth plans that include necessary operational, marketing, and administrative changes and improvements.
Possible Advisors: CPAs or consultants with expertise in marketing, operations, strategic planning, or industry specialization.
- Issue 5: Protection of Business Value. There is often a need to reassess property and casualty insurance and create restrictive agreements with key employees to protect the business from the loss of employees, customers, vendors, and confidential information.
Possible Advisors: P&C insurance specialist, business attorney.
- Issue 6: Ownership and transition tax minimization.
Possible Advisors: CPA, tax specialist, pension-plan specialist, business attorney.
- Issue 7: Exit Path Planning and Execution. If your plan design involves transferring a business to insiders, your team must include a certified (i.e., acceptable to the IRS and others) valuation expert who understands the benefits of using a low-value ownership interest. Business brokers and investment bankers supply similar information when owners choose a third-party sale as their Exit Path. They estimate a likely sale price for your client’s business.
Depending on which path an owner chooses, in addition to the advisors listed above, you may also have to recruit an ESOP consultant, SBA specialist, commercial loan officer, family-business consultant, and/or post-integration specialists and tax counsel.
Possible Advisors: Credentialed business appraiser, business broker, investment banker.
- Issue 8: Business Continuity. As part of an Exit Plan, you must create contingency plans should the owner die or become disabled prior to the planned exit. This may involve the creation of buy-sell agreements.
Possible Advisors: Estate Planning attorney, business attorney, and life insurance professional.
- Issue 9: Business Owner’s Estate Plan. In order to coordinate a business owner’s Exit Plan with his or her Estate Plan, owners must recognize that the owner’s lifetime goals and objectives (e.g., who is to succeed him or her in business ownership and how much the successor is to pay for that ownership) are often the same.
Possible Advisors: Estate Planning attorney, business attorney, life insurance advisor, trust department.
- Issue 10: Post-Exit Asset Investment. Most exits result in cash that now-former owners need to invest prudently and in accordance with their objectives. The same person who helps determine an owner’s financial needs and objectives upon an exit (probably already part of your team) is usually well-suited to advise an owner on the investments of those proceeds.
Possible Advisors: Financial advisor.
Check out your Advisor Team Roster.
Keep this list with you as you interview and evaluate the personality, experience, and Exit Planning knowledge of potential members of your Advisor Team. The list above is incomplete; you will add to it over time. As you do so, don’t forget that these advisors will look to you as the facilitator and possessor of Exit Planning expertise. Surrounding yourself with expert advisors also means surrounding yourself with expert referral sources.