A majority of respondents to BEI’s 2019 Business Owner Survey indicated that they want to sell or transfer their businesses within the next 10 years. That’s hardly surprising given that the aging Baby Boomer generation has to exit sometime. But does that mean the majority of owners will sell or transfer their companies within 10 years? Without the involvement of professional advisors? We doubt it.
Let’s review a common conversation between advisors and business owners that we see far too often. During a client meeting two years ago, advisor Tom Brubaker asked his owner/client (Lee) if he had any plans to leave his business. When Lee answered, "Yes, I'm thinking of leaving in five years," Tom made a note.
At a meeting the following year, Tom said, "At this time last year you were thinking of leaving your business in five years. If that’s still your plan, let’s devote some time to that topic since your exit is now only four years away." Lee assured Tom, “There’s no rush. I'm thinking of leaving my business in five years, not four."
Conversations like this one are repeated in thousands of advisor-client meetings every year. Lee’s response to the question about his exit date is so common that it has a name: The rolling five-year exit plan.
“I want to leave five years from today's date” could mean that an owner:
- Has actually given thought to exiting. By giving you a specific date, this owner expects you to begin helping them to achieve all their goals and objectives.
- Plans to begin to transfer ownership in five years to management or children.
- Is uncomfortable with committing to plan when s/he doesn’t know what planning entails.
- Says “five years” but really doesn’t want to think or do anything about exiting right now. They consider five years to be so far into the future that they don't have to do anything yet.
Whether owners indicate a wish to exit in three, five, or ten years, advisors must ask follow-up questions to discover what “in x years” actually means to each owner and take the appropriate action.
If an owner is stymied for whatever reason, BEI Members ask owners about the concerns they have about their businesses and the ability to exit. Members often suggest that owners take a short assessment designed to help owners determine how prepared they and their businesses are for an exit.
Follow-Up Annual Meeting
If an owner is just not ready to think about exiting or planning, you might suggest an annual meeting, the purpose of which is to consider actions to improve current business performance (rather than plan for an exit). These meetings naturally evolve from discussions of current concerns and opportunities to longer-range issues, such as Exit Planning.
Continue the Conversation
Regardless of an owner’s reason for assigning a number of years to his/her business exit, you have started the planning discussion. Keep the conversation going by reaching out with ideas and information on Exit Planning that demonstrate your ability to and interest in helping them.
- Most owners wish to exit within the next ten years.
- As advisors who want to help owners make one of the most important financial decisions of their lives (exiting their companies successfully), we must initiate Exit Planning conversations.
- Most owners will more than likely not be ready to move forward with Exit Planning when advisors first raise the topic.
- Strategies to help owners who wish to exit but aren’t willing or “ready to begin planning include”:
- Assessing how prepared both owner and company are for an owner’s exit.
- Scheduling a meeting to explore ways to grow the business or manage current opportunities or challenges.
- Providing information related to the merits of planning on an on-going basis.