One of the most important aspects of a successful business or advisory practice is hitting deadlines. Imagine working with a client who needed you to complete a task by a certain date and missing that deadline. When your rightfully furious client confronts you about why you didn’t make your deadline, what would you say? “I didn’t have time to do that”? “I had other, more important things to do”? This kind of brashness could destroy a business or advisory practice. Yet, it’s often how business owners and advisors treat the Exit Planning deadline.
Most owners and advisors don’t look at their Exit Planning deadline maliciously. They simply don’t know how important Exit Planning is, what it takes to do properly, or where to begin. In this post, we’ll outline two of the most important things owners should consider about their business exits and explain some things advisors can do to help them.
The Exit Planning Deadline Is Closer Than You Think
Business owners are usually reactive about their business exits. They don’t consider their exits until they feel that they are ready to exit the business. Often, by the time owners are ready to exit, they discover two things. First, they discover that their businesses are unsellable because the business relies too heavily on the owner for its success. Second, because they waited until they were ready to exit, owners often don’t have the energy or desire to make the business less reliant on them. This makes it hard, and sometimes impossible, for owners to leave their businesses when they want, for the money they need, and to whomever they choose.
Establishing urgency is a key responsibility for business advisors. Time and again, business owners have viewed their exits as something that will happen in the far future and so assume that they don’t need to do anything right now. Owners of small and mid-sized businesses also tend to deeply immerse themselves in business operations. Because they have so much to do, they view Exit Planning as too much for them to handle right now. Unless advisors can disprove this incorrect assumption, business owners will continue to wait too long to plan for the most important financial event of their lives.
Exit Planning Advisors address this problem in three steps.
- They ask an important question: “What have you done to address your business exit?” Unless business owners have a written Exit Plan, they simply have not done enough to position themselves for an exit on their terms.
- They help owners visualize their wants and needs, then establish a timeline for achieving them. Using three BEI tools—the Exit Planning Path Finder, the Exit Planning Assessment Workbook, and EPIC software—advisors take the guesswork out of Exit Planning. When business owners can see what matters to them and focus on how long it takes to achieve what matters, they’re much more open to acting now.
- They shoulder the burden. Exit Planning Advisors work with Advisor Teams to do the work necessary to achieve the owner’s goals. Advisors who don’t have Advisor Teams find help at BEI, because BEI has an entire network of advisors who are willing and able to help. And owners are usually pleasantly surprised that they don’t need to quarterback the Exit Planning Process. Though the owner’s input is crucial, the Exit Planning Advisor leads the way, giving owners more time to do only the things they want to do.
Who Takes the Baton After the Exit Planning Deadline?
Many business owners are used to shouldering the biggest burdens for the company. This fact is a massive obstacle for a successful business exit. No matter which Exit Path an owner ends up pursuing—sale to a third party, transfer to management, transfer to children—the business must have top-tier management in place to take the baton. Unfortunately, many business owners neglect grooming a proper successor until it’s too late.
A next-level management team is the most important Value Driver for a business. The management team is the group that continues the company’s success after the owner exits. This affects the business’ sale price if selling to a third party and the cash flow used to pay for the owner’s share if selling internally. A management team often makes or breaks a successful business exit. Despite this, 46% of surveyed executives were not grooming a successor, and 61% could name either zero or one internal candidate who could immediately assume the CEO position, according to a 2013 Stanford Graduate School of Business study.
Exit Planning Advisors address this problem often, and they have an edge. Working with an Advisor Team gives Exit Planning Advisors access to advisors who have worked with next-level managers. So, if there are no internal candidates for succession, the Exit Planning Advisor and Advisor Team can find a candidate that runs the company as well—and oftentimes, even better—than the exiting owner. This inherently raises the value of the company, because its performance isn’t tied to the exiting owner.
They also have networks of business consultants and coaches who can work with potential internal successors. This is especially useful for owners who are willing to commit to Exit Planning but take a hands-off approach to developing talent. When it comes to successors, the key is to identify the kind of management needed, then either go out and get it or groom it. Neither option is better than the other. What matters is that advisors understand what they need to do and whom to look for, and having a dedicated Advisor Team facilitates that.
Treating Exit Planning like a deadline takes excuses about time off the table. Of course business owners have a lot to do, but they didn’t build successful businesses by pushing critical functions off and missing their deadlines. Advisors should frame the Exit Planning conversation as though it’s a deadline to be met, not a chore to be put off.