For many business owners, a successful business exit is the light at the end of a dark tunnel. They yearn to reach it, but find themselves tripping over obstacles as they try to approach it. They know they could reach it if only they had a torch to light the way, but they simply don’t know how to make the fire that will guide them through the darkness.
An Exit Plan is the fire that guides owners through the dark tunnel of planning toward the light of a successful exit.
Consider the concept of the fire triangle. To create a fire, we need three elements: heat, fuel, and oxygen. Remove one element and there’s no fire. Creating an optimal Exit Plan is no different. All Exit Plans require three elements: an Exit Planning Advisor, an Advisor Team, and a Process. Let’s look at what business owners can expect when they begin to gather each element of every successful Exit Plan.
Exit Planning Advisor
An Exit Planning Advisor (i.e., Exit Planner) is the heat of the Exit Planning flame. Most successful Exit Plans begin and end with the Exit Planner because he or she does all of the following:
- Explains the Exit Planning Process to owners, management (if involved), and other advisors.
- Guides the Exit Planning Process.
- Uses facilitation tools to ensure collaboration and communication among advisors.
- Serves as the coordinator between owners, advisors, and themselves.
- Assures that the Exit Plan follows the Seven Steps laid out in The BEI Seven Step Exit Planning Process™ (a topic we will discuss more deeply in our next post).
- Makes recommendations for the owner and advisors to consider, with input from the Advisor Team.
Most business owners begin the process of creating an Exit Plan by hiring a qualified, professional Exit Planner. That’s because the Exit Planner keeps the heat on the owner and the Advisor Team, assuring that everyone stays in line with the proven Exit Planning Process to ensure the best probability of creating and implementing a successful Exit Plan.
The Advisor Team
The Advisor Team is the fuel of the Exit Planning flame. A common assumption that owners and advisors make is that the Exit Planner does it all throughout the Exit Planning Process. In reality, owners and their Exit Planners rely heavily on an Advisor Team comprised of top-notch professionals assembled by the Exit Planner. Each advisor on the Advisor Team is called upon to add expertise relevant to each Step of the Exit Planning Process.
For example, an Exit Planner, Liz, may have a background in law, which allows her to apply her core skills to drafting legal documents relevant to an ownership transfer. However, Liz likely has little knowledge of business valuation, which is a critical aspect of all strong Exit Plans. Rather than working out of her element, Liz can call upon a professional business valuator, who is a part of her Advisor Team, to complete that portion of the Exit Using the expertise of each member of the Advisor Team keeps the Exit Planning flame shining brightly, which in turn keeps owners and their advisors motivated to implement the Exit Plan.
Business owners can expect their Exit Planners to assemble an expert Advisor Team. In some cases, Exit Planners find that owners’ current advisors have the expertise to join the Advisor Team, so it’s always advisable for owners and Exit Planners to discuss which advisors are the best fits and why.
The BEI Seven Step Exit Planning Process™ is the oxygen of the Exit Planning flame, because it gives life to the Exit Planner’s leadership and the Advisor Team’s expertise. This Process is how the owner, Exit Planner, and Advisor Team create and implement a strong Exit Plan. While each Exit Plan is unique, each successful Exit Plan breathes, grows, and thrives on the same process.
Business owners who hire Exit Planners trained to use The BEI Seven Step Exit Planning Process can expect the Process to fulfill four criteria.
Leaving No Stone Unturned
Using the Exit Planning Process gives business owners and their advisors assurance that they are not overlooking important issues or opportunities. For example, if an advisor recommends that an owner implement an incentive plan for a key employee (e.g., a non-qualified deferred compensation plan), BEI’s Exit Planning software will cue the advisor to suggest other related recommendations, such as a covenant not to compete, non-solicitation agreement, employment agreement, or a method of informally funding the agreement. Rather than receiving a one-size-fits-all recommendation, owners can expect options that are tailored to their specific needs.
Coordinating Multiple Players
A well-crafted Exit Plan is the result of collaboration among several advisors from different professions (usually five or more) to produce and implement an optimal solution. These advisors are involved at various times over an extended period—often five years or more. These facts are usually a massive obstacle for owners, because they assume that Exit Planning will force them to spend more time than they have coordinating their advisors.
Fortunately, the Exit Planning Process is coordinated by the Exit Planner, meaning that the owner is only involved when absolutely necessary. A key feature of the Exit Planning Process is that it allows Exit Planners to track and coordinate all of the work each advisor needs to do. Thus, owners can expect smooth coordination of all advisors, tools, and systems through the Exit Planner.
Advisors trained in the Exit Planning Process can provide owners with a unique yet systemized road map. This systemization allows for efficiency without ignoring the unique complexities of the owner’s business. By using the Exit Planning Process, business owners can expect to plan their business exits in ways that are complementary to business operations, not detrimental.
Looking at the Big Picture
The Exit Planning Process is owner-centric, which means that everything that advisors do within the Process is aimed at achieving the owner’s goals. Not all advisors will have an ongoing role in Exit Plan creation, which means that advisors must understand how they fit within the Exit Plan. For example, if an attorney is charged with drafting an incentive plan for a key employee, the attorney must align the incentive plan with the owner’s exit goals related to financial security, successor, and departure date. The written Exit Plan generated by the Exit Planning Process provides this context.
The absence of any element—Exit Planning Advisor, Advisor Team, or Process—results in an incomplete Exit Plan at best. Usually, a weakness in any one element dooms a plan to failure in all but the simplest ownership-transfer scenarios.
Business owners don’t need to light the Exit Planning flame on their own. They need the three elements that make every Exit Plan burn brightly. Now that we know what those elements are, owners can gather and combine them to create the Exit Planning flame that lets them overcome the obstacles on their way to a successful business exit.
In our next article, we will provide a more detailed description of the Exit Planning Process, specifically, the Seven Steps of The BEI Seven Step Exit Planning Process.