In this series of posts, we’re discussing the creative, but all-too-common, objections owners make to regarding Exit Planning.
A third common objection speaks to a problem many owners face: “There’s no reason to plan an exit until my business is worth enough to leave.”
Many advisors do not specialize in increasing business cash flow/value, which causes them to respond, “I’m not equipped to help you build value,” and move on to other prospects. It’s likely that most owners would agree with their advisors: They don’t believe that attorneys, CPAs, financial planners, or most other professionals can help them grow value. But all Exit Planners run into the issue of value. In fact, inadequate business value is the primary issue Exit Planners will have to tackle. Since many Exit Planners come from backgrounds that don’t explicitly deal with increasing value, how do they address this issue?
Exit Planners appreciate the need to upend most owners’ understanding of the relationship between Exit Planning and growing value. Owners think they need to grow their companies before talking to anyone about Exit Planning. However, Exit Planning is central to creating a company that has sufficient cash flow and the right kind of value—transferable value—to support an owner’s successful exit. That means that the converse is true: Owners can (and should) take up Exit Planning to grow their companies and thus do not need to wait.
It’s All About Business Value
Business value, or lack of it, was a consistent theme for the respondents to The BEI 2016 Owner Survey . We asked owners to complete the sentence, “I believe that the greatest obstacles to my successful future exit from my business are. . . .” The responses were:
To probe the respondents’ willingness to exit, we then asked, “ If a buyer offers you enough cash for your business to provide you with complete financial security, would you sell today?” Seventy-five percent answered “Yes.”
How then can owners move forward with Exit Planning now, before the business is ready to exit?
Know Thy Self, Know Thy Enemy (Sun Tzu)
In this battle to increase value, we’ve established that most advisors are likely not experts in the field. Now, let’s look at what they’re up against:
It’s clear that owners need help, but how can Exit Planners help them?
Know the Relationship Between Exit Planning and Value Creation
BEI Members lead with their Exit Planning knowledge and experience. They show owners how they can help, as Exit Planners (not just as attorneys, CPAs, financial planners, etc.), develop and implement plans to grow businesses to the level owners need to bridge the financial/value gap between where they are today and where they must be to exit.
Creating and increasing transferable value starts with creating, motivating, and retaining great managers. Having seasoned, best-in-class management is indispensable to any company’s long-term growth for one simple reason: Management is responsible for the creation, direction, and rate of growth of all other Value Drivers. More effectively than any other Value Driver, best-in-class management creates transferable value—the ability of a business to continue without the owner with minimal disruption to its cash flow.
Related: Why Owners Delay Exit Planning
How, Exactly, Do Exit Planners Explain That Relationship?
Step 1: Exit Planners don’t need to be experts in building value, but they do need to understand the role value plays in every owner’s successful exit. Unless they are experts in increasing business value, few of BEI’s Exit Planners roll up their sleeves and dive into their clients’ businesses to help them grow value. Fortunately, they don’t have to know how to help grow business value in every situation. Instead, they need to know the following:
Step 2 : Exit Planners help owners explore commonly used tools and designs used to attract, retain, and incentivize key employees to grow business value and cash flow (e.g., non-qualified deferred compensation plans, phantom stock plans, stock bonus plans).
Step 3 : Exit Planners review tools they might use to protect a business from harm should an employee leave (e.g., non-solicitation agreements, covenants not to compete, employment agreements).
Step 4 : Exit Planners explain their involvement as the “field general” of the owner’s campaign to grow value. BEI Members tell owners that they have a solid understanding of the importance of a management team in value building, what needs to be done, and by whom. They are not value-building experts, but they do have extensive training in Exit Planning and the support of BEI’s Exit Planning project management software, EPIC. They have access to a network of other advisors, and a host of tools and planning ideas designed to motivate, incentivize, and retain excellent management teams.