What Business Owners Assume About Financial Planning Hurts Them

What Business Owners Assume About Financial Planning Hurts Them

One of the most important goals of Exit Planning is to position business owners for post-exit financial security. To do that, business owners and their advisors must have several pieces of information: how much the business is currently worth, how much money the owner will need to live the post-exit lifestyle they choose, and which non-business assets the owner has.

In our experience, business owners tend to overestimate how much their businesses are worth, overestimate how much their investment portfolios will grow, and underestimate the amount of money they need after they exit. Unless a financial planning expert tells them otherwise, many business owners often try to exit their businesses using faulty information. Consider the example of Lynn Setum, a business owner who nearly courted disaster by making incorrect assumptions about her financial planning.

Death Can Ruin Your Plans

Death Can Ruin Your Plans

Imagine building your business over several decades, beginning to plan your business exit, then dying unexpectedly before you can implement your plans. Business owners rarely think about how an unexpected death or permanent incapacitation can derail even the most carefully created plans. And it makes sense: If you were always worried about what could go wrong, chances are you’d have never started your business in the first place.

But as you approach your business exit, you’ll likely want to take steps that minimize the kinds of outside effects that can cause your planning to fail. One way to do that is to install Business Continuity Instructions. Business Continuity Instructions are a formalized process that gives your family, business partners, and employees guidance regarding how to address any number of unexpected events. Whether those events are extreme—such as death, incapacitation, or blackmail—or more common, such as divorce or a co-owner or key employee leaving the company, Business Continuity Instructions can position you to implement your Exit Plan despite the unexpected.

Generally, Business Continuity Instructions are useful for answering three key questions.

What Exit Planning Can Do for You

What Exit Planning Can Do for You

As a business owner, you likely have plenty on your plate. You have a business to run, perhaps a family to care for, and many other responsibilities that require your time. So, why should you consider pursuing Exit Planning? Can it help address issues relevant to you without eating into what little time you have?

Whether you’re thinking about exiting your business soon or expect to stay in your business for decades, Exit Planning can have positive consequences for you, your business, and your family. Exit Planning uses an owner-centric mind-set. This means that Exit Planning focuses on your goals and desires. More specifically, Exit Planning works to position you to leave the business when you want, with the money you decide you need, and to whomever you choose. Rather than adjusting your goals to fit into a strategy, Exit Planning adjusts the strategies around your goals, giving you more control and freedom over how you approach your business exit, no matter which Exit Path you choose.

Even If You Never Plan to Exit Your Business, Exit Planning Can Still Help

Even If You Never Plan to Exit Your Business, Exit Planning Can Still Help

Many business owners take pride in the businesses they’ve built. Some of those owners are so proud and dedicated to their businesses that they’d be happy dying at their desks, doing what they love. They believe that they can wait until they’re ready to begin thinking about what happens when they exit the business, either by choice or otherwise. A few believe that they don’t have to plan for their exits at all. They figure that since they are willing to die in the business, there’s no point in planning for their exits.

This might be a flawed mind-set.       

Why You'll Need an Advisor Team

Why You'll Need an Advisor Team

Exit Planning can be complex. Between setting your exit goals and transferring your business, you’ll attempt to build business value, find an appropriate successor or buyer, navigate perplexing tax implications, and keep your key employees onboard. And that’s just a few of the things you’ll do! With so many considerations surrounding your business exit, you may want to consider creating an Advisor Team.

Simply put, no single advisor has sufficient expertise to create and implement all of the activities required in a typical Exit Plan. To give yourself the best chance to exit your business on your terms, you’ll likely require the services of several advisors from different fields. These may include a CPA, a financial advisor, a business lawyer, an estate planning lawyer, an insurance professional, a business valuation specialist, an Exit Planning Advisor, and others. Depending on the size and complexity of your business, and the requirements you set to consider your exit successful, you may need anywhere from two to seven different advisors on your Advisor Team. That’s perfectly normal. The diversity of expertise will work to your benefit.


Getting the Results You Want

Getting the Results You Want

As you consider your business exit, you may find that approaching it alone is prohibitively challenging. You may also find that some of the advisors with whom you’ve worked don’t have all of the skills, tools, and strategies necessary to help you exit on your terms. While planning for your future is the key, you know that results are how you’ll judge your business exit. But a business exit can have several facets, such as personal, financial, and professional considerations. Is it possible to address all facets at once?

 We recommend that you follow a comprehensive Exit Planning process that responds to the unique qualities you and your business possess. You’ll first want to establish your goals for yourself, your family, your business, and your employees. Next, evaluate what you’ve done so far, where you’ve made progress, and where you’ve fallen short. Then, identify and compare action items that may move you closer to your goals. You’re likely to need more than one qualified advisor to help you uncover opportunities and strategies that move you forward and address specific aspects of your business exit. Last, you’ll set a schedule and assign responsibility for getting things done.

Let’s look at how these activities can affect your business exit.

3 Benefits of Written Exit Plans

3 Benefits of Written Exit Plans

Planning a business exit can seem like a lot of work at first. From building business value to developing capable successors to figuring out exactly what you want to do with your life after you leave, Exit Planning might look like too much work for one person to do. In our experience, Exit Planning isn’t something that business owners can tackle alone if they want to exit on their terms. But with so much to do, where can you start?

One way to begin the Exit Planning Process is by writing your Exit Plan down. Writing your Exit Plan down can provide three potential benefits when done properly.

What’s So Important About Planning?

What’s So Important About Planning?

When business owners start their businesses, they often create a written business plan to guide them toward success. However, many successful owners don’t mimic that process when they begin to approach the end of their business ownership.

There are three areas in which forgoing planning for the future can create unintended consequences for business owners: money, time, and successors. Consider how a thoughtful planning process (or lack of one) can affect each area.

Balancing Your Goals With Your Family’s Goals in Family Transfers

Balancing Your Goals With Your Family’s Goals in Family Transfers

If you’re considering transferring your business ownership to family, you might be tempted to put your family’s wants over your own goals. While this altruism may be admirable, it can also cause more problems than it solves. Consider the case of Darnell Orie.

Darnell Orie was unsure how to approach his business exit. His son, Hannibal, was the main reason why his company had tripled its revenues and profits over the last 15 years. And even though he wanted to begin winding down his own involvement in the business, he knew that he had to keep Hannibal motivated to grow the company: His retirement depended on Hannibal’s continued success growing the company.

Darnell had always wanted to transfer ownership to Hannibal, but he knew Hannibal didn’t have the money to pay him full value. He wanted to begin transferring ownership now, but he also felt it would be unfair to expect Hannibal to pay full value, because Hannibal was primarily responsible for the business’ success through his work.

The Dangers of Transferring to Children Without Planning

The Dangers of Transferring to Children Without Planning

After building a successful business, many business owners decide that they want to transfer their ownership to their children. Too often, those owners assume that a transfer to children will go smoothly and simply, requiring little more than informing their kids of the date they’ll be taking the reins. Owners who make this assumption commonly realize that without planning, they can harm their businesses, their business exits, and their long-term relationships with their families.

Without proper Exit Planning, ownership transfers to children can produce negative consequences in three areas of your life.

Unforeseen Challenges to Third-Party Sales

Unforeseen Challenges to Third-Party Sales

For many business owners, a sale to a third party is their assumed Exit Path. Some business owners even start their businesses with the goal of finding a larger, more deeply pocketed buyer; selling the business; and retiring early. The potential to sell the business for cash draws business owners to third-party sales. If you are considering a third-party sale, do you know the full scale of the planning you’ll need to do to get ready? Those who make plans improve their chances for a successful sale.

While it’s true that many business owners initially intend to pursue a third-party sale as their Exit Path, it’s also true that many of those same owners choose a different Path in the end. There are four challenges that you may face in pursuing a third-party sale that may cause to you change your mind, and some of them are unexpected.

Building Business Value Through Exit Planning

Building Business Value Through Exit Planning

Business owners seldom seek to exit their businesses without attaining financial security. They understand that one requirement of financial security is to grow business value, but many struggle to achieve this goal. Fortunately for these owners, Exit Planning can directly address their need to build business value and serve as an unexpected solution for owners who want to increase their businesses’ value, but don’t know how.

One of the pillars of Exit Planning is a timeline that plots the value-building actions that owners should consider in order to position themselves to exit their businesses on their chosen exit date. This timeline incorporates how much the business needs to grow in value to meet the owner’s financial target by the owner’s departure or exit date. The timeline is created after the business owner’s professional advisors assess the owner’s current resources (especially business value and cash flow) relative to the owner’s financial needs post-departure.

The Two-Pronged Approach to Exit Planning

The Two-Pronged Approach to Exit Planning

When business owners begin to think about their business exits, they tend to focus on one specific goal that they want to achieve. Some owners focus on when they want to exit, some focus on how much money they want when they exit, and others focus on the person or group that will take over once they exit. But what’s the process that takes owners from thinking about what they want, to acting on what they want?

In the context of Exit Planning, it’s important for business owners to understand the two-pronged approach that Exit Planning Advisors take to Exit Planning. The first prong is the general prong, which focuses on a successful business exit for a business owner. The second prong is the specific prong, which focuses on the business owner’s goals and in turn defines what makes the business exit successful.

How Emotion Affects Your Business Exit

How Emotion Affects Your Business Exit

Generally, business owners feel comfortable being owners. They enjoy what they do, but rationally, they know they need to change their roles in their businesses eventually. But most owners don’t resist planning their exits on a rational basis. Instead, they resist Exit Planning at an emotional level.

Consider Clancy, a 50-year-old business owner. He loves working at and owning his 25-person manufacturing company, but he knows that he’ll eventually need to start preparing for retirement. He assumes that if he can sell his business for about $5 million, he and his wife can live comfortably and still help send their grandson, Ralph, to the finest colleges. He gets his business professionally appraised and learns that it’s currently worth $3.5 million.

The Importance of Setting an Exit Date

The Importance of Setting an Exit Date

According to surveysup to 79% of business owners plan to exit their businesses within the next 10 years, with more than half saying they want to exit within the next five years. However, many business owners fall into the trap of the “rolling five-year Exit Plan,” in which owners constantly reset their exit dates for five years later. This often prevents them from taking tangible steps to accomplish their exit goals.

To highlight the consequences of setting an exit date, let’s look at a case study involving a business owner, Charles Franklin, and his Exit Planning Advisor, Mathilda Traubert.

Charles met with Mathilda to discuss the first steps he needed to take to exit his business on his terms. After learning that Charles wanted fewer responsibilities and more free time as he exited his business, Mathilda asked, “Have you decided precisely when you want to exit your business?”

Handling the Early Stages of Exit Planning

Handling the Early Stages of Exit Planning

For business owners, the idea of exiting their businesses, which for many owners define their professional lives, can seem like a gigantic undertaking. They ask themselves, “How can I possibly do all of this? Where can I go for help, and what do I need to know?”

These questions are perfectly normal to ask as you consider your business exit. Further, business owners are absolutely correct in thinking that Exit Planning is a gigantic undertaking. No single business owner or advisor can create and implement an Exit Plan alone. In our experience, most successful Exit Plans occur through a process of collaboration among several different professions.

How Does Exit Planning Protect Business Value?

How Does Exit Planning Protect Business Value?

When you set about starting your business, you likely had big goals and expansive dreams about its success. Whether success meant having an impact on your community, making as much money as possible, or something else, you probably wanted your business to become the ideal firm in your market.

As you build your business toward the ideal, you concurrently build your business’ value, which is a key aspect of a successful Exit Plan.

Does this mean that hiccups, stalls, or unforeseen failures in the growth of your business’ value will directly affect your business exit? While that can be true, proper planning helps mitigate those kinds of fluctuations. Consider the situations of two owners, Wendell Heath and Aspen Taylor.

When Key Employees Stall Your Exit

When Key Employees Stall Your Exit

An important part of a successful ownership transfer, regardless of Exit Path, is the presence of key employees. Key employees are those who have a direct and significant impact on business value, meaningfully participate in the business’ strategic future, and whose combination of skills and experience would be exceedingly difficult to replace.

Because of their role in the business, key employees can just as easily stall your business exit as facilitate it. Consider the story of Maria Villalobos, who had her Exit Plan stalled by one of her key employees.

Knowing What You Have to Get What You Need

Knowing What You Have to Get What You Need

For many business owners, building their successful businesses began by accurately determining what they had. Whether their businesses provide products, services, or ideas, the success they experienced didn’t come to them blindly. It likely took years of refinement, study, and analysis to figure out the best way to establish and deliver the thing that makes the business successful. The same is true when discussing business exits.

As owners set their business exit goals, they may find that the resources that they currently have do not allow a financially independent business exit. That is, if those owners were to exit their businesses with their current resources, they would likely need to go back to work at some point to stay personally solvent. For those owners, a business exit is less a retirement and more of a headfirst dive into a pool of new challenges and opportunities. When they dive headfirst into that new phase, they want to make sure there’s enough water in the pool to keep them afloat after they’ve jumped.

Setting Exit Goals for the New Year

Setting Exit Goals for the New Year

With the new year upon us, many people have begun their journeys to fulfill their New Year’s resolutions. For business owners, it’s no different. Between creating goals for the business to achieve and assuring that the business keeps growing, owners will have much to consider this year. One of the goals most commonly shared by owners is to successfully exit their businesses over the next 10 years. Most business owners have a sense of how much longer they want to remain as owners of their businesses, and the new year is a perfect time to take control of the planning that can make the future successful.