When Should You Start Talking to Clients About Their Exits

Fri, 02/18/2022 - 09:02


When Should You Start Talking to Clients About Exit Planning?

An Exit Plan is critical for any business owner to secure their desired future, but most don't see the relevance of establishing one until they're ready to leave their business. Exit Planning is necessary no matter what exit path the owner plans to take, and planning shouldn't be overlooked until the time comes that a change is essential. However, planning an exit is not easy; there isn't a one-size-fits-all strategy that works for every business. Every business is unique, and each owner will have different hurdles to overcome and considerations to make to ensure their goals are met.

That said, advisors should strive to stay one step ahead, guiding business owner clients through their exit experience right from the start.

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The Responsibilities of an Advisor in Exit Planning

A business advisor equipped with Exit Planning should guide their clients throughout the whole process to help them understand that their personal and business goals dictate the road to a successful exit. The role of advisors regarding Exit Planning is to collect information, check available resources, collaborate with other involved parties, and ultimately, help business owners map out the steps involved in their Exit Plan based on that data.   

Generally, advisors have three primary responsibilities:

  • Educate owners about the different exit paths they have available to them.
  • Coordinate with the client’s internal advisory team to facilitate each step of the exit.
  • Provide the necessary services to ensure owners successfully transition from the business from beginning to end.

How Can You Help Your Clients Plan Their Exit?

The most significant responsibility as an Exit Planning Advisor is to set the exit goals by working with business owners to quantify those goals. Since Exit Planning shouldn't be a last-minute process, you'll need to start working on the Exit Plan many years before the desired exit given that the business environment can be unpredictable. Additionally, there are sometimes unforeseen personal situations that arise, causing  a client to exit their business at a  moment’s notice,

This in mind, noting the possible strategies creates a blueprint for the future and measures for success. During the planning stages, business owners will discover their vision beyond the business, and it's the task of an advisor to get them there and entice the urgency needed to move the process along.

However, before outlining the exit strategy, it is essential to understand your client's needs by gathering more information on issues such as:

  • Financial goals
  • Timeline
  • Involvement
  • Available resources
  • Current & Anticipated Obstacles
  • Possible Exit Paths

After gathering all the required information, you can design the appropriate exit strategy that aligns with the owner's personal and business goals.

How Soon Should You Start Exit Planning?

Time binds all exit decisions, and owners need to prepare for their exit as soon as they start running their business. Advisors must encourage their clients to plan for their exits early to reap the best possible rewards.

It is advisable to start planning for an exit at least five years in advance, but 10+ years would be even better.

Ten Years to Exit

Ten years may seem like a long time to an involved owner, but not in the business environment. It takes time to shape a successful Exit Plan so the earlier, the better. Ten years before the desired exit, you'll need to ask owners to consider things like:

  • How do you plan to exit your business at this time? Do you want someone else to take over the company, or do you plan to sell it?
  • Who is that person if you want someone else to run the company? And are they ready, or do you need to recruit and train them?
  • If your successor is already working with you, how do you plan to develop the skills and knowledge they'll need to take over?
  • If you plan to sell the company, do you plan to sell to a group of employees or a specific employee? Or perhaps, do you plan to sell to an outsider?
  • How will the purchase be financed if you plan to sell to employees?

The above questions are just a few that will help your clients shift focus on how they want to transition.

Five Years to Exit

Regardless of the type of business a client runs, five years before their exit, they should identify their future leaders and begin training them to take the reins when the time comes.

Encourage your client to determine the financial return they'll require from selling the business. If the value they put on their company isn't realistic enough or is not enough to meet their financial needs, you’ll have time to help them get those financial needs and business value in sync.

If a business is doing well financially, the Exit Plan should maximize profits. However, if it's struggling, the Exit Plan should minimize losses.

Three Years to Exit

A few years to retirement or the chosen to exit it's only natural that customers and employees will start wondering about the future of the business. You'll need to encourage the owner to begin making informal announcements about their exit and plan necessary communications so that everyone involved in the business feels confident about the future.

It is also crucial to help them get a valuation and start finalizing their transition timeline at this moment. Encourage owners to spend time with their successors if possible; coaching, advising, and involving them in their expected day-to-day roles and responsibilities.

Conclusion: Start Now! 

The most effective Exit Plan for any business aligns with the goals and expectations of the business owner. Exit Planning involves much more than financial planning, succession planning, or tax planning. It's a comprehensive approach encompassing all these planning aspects and more that will help your client transition smoothly.

To best help your clients, start talking to them about their exits as soon as they're in business and help them build a fool-proof Exit Plan based on their wishes, needs, and future goals. And, of course, be there for them throughout the Exit Planning journey. Their needs will vary depending on their circumstances, but the constant is that the time to begin planning is now and they need your expertise to guide them.

To learn more on how BEI can provide you with applicable solutions, schedule a meeting or contact us!  

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