In last week’s article, we discussed how important the emotional aspect of a business exit is to owners. While many business owners and advisors like to think that they don’t let emotion guide their decisions, years of experience have shown me that emotion is not only a key determinant behind many business exits but also the main driver. Thus, it’s important for us, as owners and advisors, to know how to identify the emotional aspects of a business exit so that we can later use logic to address the realities behind a business exit.
In this article, we return to Sally Campos, an Exit Planning Advisor, and Miles Smith, a business owner, to examine how they addressed Miles’s temptation to kick the Exit Planning can down the road.
Avoiding the Rolling 5-Year Exit Plan
After Miles told Sally that he wanted to do something to make sure that he could leave his business on his terms, Sally asked him an important question.
“Have you decided precisely when you want to exit your business?”
Miles sheepishly slid his BEI Value Driver Analysis across the table and opened it. He pointed to the following question that he had filled out:
“I don’t have an exact date,” he said. “And since I haven’t really thought about it, I put a ‘1’ for importance. I figure if I haven’t thought about it, it can’t be that important.”
“Can you tell me why you don’t feel that your exit date is that important to you?” Sally asked.
Miles paused. After a moment, he said, “If I fix a date, that means I’m committing to exiting. But I love doing what I’m doing now.”
While Miles recognized the need to plan his exit, he didn’t want to face the heart-rending thought of separating from his business.
“So, I guess I’m saying I want to leave in about five years, but I don’t want to set an exact date.” He began speaking more feverishly. “Besides, if I’m not running my business, what will I do? What will happen to my business? Without my business, what will happen to me?”
“You obviously care about your business a lot,” Sally said.
“I can’t stand the thought of it failing, but I also can’t stand the thought of not being able to leave,” Miles said.
Sally’s ears perked up. She knew that Miles needed to draw a line in the sand: a deadline. She knew that once Miles set a deadline, she could help him create the timeline to accomplish the necessary tasks to achieve his exit goals. But most importantly, she knew that the only way to get Miles to act was to focus on what he wanted, not what she knew. Unless Miles had an emotional reason to set a deadline, he never would.
“What if I told you that by setting an exit date, we can take steps to make sure that your business is ready for your exit?” Sally asked. “Having that date in mind lets us do the things we need to do to let your business thrive as you get ready to leave. You’d still be involved, but as we moved closer to your target date, you’d be transitioning into fewer responsibilities and more free time.”
“But what if it’s not ready by then?” Miles asked.
“We’ll use that date as our goal,” Sally responded. “On that date, the business will be able to continue with minimal disruption to its cash flow without you at the helm, regardless of whether you leave.”
“So, if I’m ready to leave then, I can. If not, I don’t have to?” Miles asked.
“That’s right,” Sally said.
Miles thought for a moment, then nodded. “That makes sense,” he said. “Can we make five years from today our target?”
Helping the Head and Heart Agree
Logically, we might assume that once business owners appreciate the amount of planning and number of actions that go into their successful exits, they would demand immediate action. But logic fails to motivate business owners to act because they are emotionally not ready to face the consequences of being separated from their businesses. They enjoy being owners. They are emotionally and financially satisfied doing what they are now doing.
It may not be logical, but many business owners delay doing what they know they need to do because they cannot imagine a more satisfying life post-business.
How can advisors reconcile the hearts and minds of the owners they work with, and what can business owners expect from these actions?
- Recognize that there are logical and emotional reasons that cause business owners to balk at the suggestion to begin Exit Planning. Emotional reasons often surface when advisors suggest the need to set a specific exit date, as we saw with Sally and Miles. The discussion of an exit date is an ideal time to probe the non-financial reasons that prevent an owner from exiting, helping owners and advisors speak on the same terms.
- Understand and communicate that the business owner needs to set an exit date so that the business is prepared for the owner’s exit by that date. Many Exit Plans, as BEI Members create them, are designed so that owners transition ownership and responsibilities over the exit time frame, rather than all at once. Using these designs, a business owner’s physical and emotional exit occurs gradually, at a pace the owner chooses. This provides the owner with flexibility and control during the entire transition process. When appropriate, advisors can design Exit Plans that enable business owners to retain some ownership post-exit, if they choose.
In short, setting a departure date allows advisors and business owners to undertake the planning and action items needed to prepare the business for the owner’s exit, giving the owner the flexibility to leave when he or she wants.
When advisors understand why some business owners resist setting an exit date, they can transform the conversation from one owners may resist (“What will I do when I no longer own my business?”) to one they will readily participate in (“What planning and actions must I do to make certain the business is ready to be exited when I am ready to exit?”).
If you’re an advisor who’s looking for the tools to help your clients assure that their businesses are ready for their exits when they are, contact us or call 303-321-2242. We have a variety of tools and strategies to help you.
If you’re a business owner looking for an advisor who can help you address the most important financial decision of your business life—the transfer of ownership, visit our Find an Advisor page or contact us directly today. As the leader in Exit Planning, BEI aims to provide everything we can to facilitate successful business exits.