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Exit Planning

Three Questions to Unlock What Owners Want

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“I’ve been thinking of selling my business.  Can you help me?”  Many advisors to business owners are hearing this question with increasing frequency.  After all, most of your entrepreneurial clients have likely been thinking about exiting their businesses for years.  When they finally decide to meet with you, their first question is usually about an exit path, “Who should my successor owner be?”

Owners usually start the conversation looking for advice about which exit path (sale to management, a third party, children or an Employee Stock Ownership Plan) is best for them.  In offering advice, advisors respond with descriptions of the merits and demerits of each exit path.  Advisors base their suggestions on their experiences with clients in similar situations.  This approach is normal, but often (if not usually) wrong.

It is wrong because it jumps the gun:  neither owner nor advisor has a full understanding of the owner’s goals.  They spend time trying to answer questions rather than asking questions to determine what the owner wants and needs in exiting the business.

Contrast that approach with one founded on understanding the owner’s exit goals and aspirations for herself and her business.  The successor owner is but one of several of an owner’s exit goals.  There are several other universal exit goals and your job is to help owners understand and quantify all of them.

We suggest that you begin by asking three questions–each based on uncovering one of the three universal exit goals.
 

  1. ​After you leave the business, how much money do you want each year for the rest of your life and your spouse’s life?
  2. When do you want to leave your business?  And what does “leave” mean?
  3. Who should be the new owner of your company?
     

The owner’s foundational goal, these universal goals and an owner’s aspirational goals provide the framework for all planning and execution.  Once clarified and prioritized, you know when the owner wishes you leave, how much money or income the owner needs from the business, and whom the owner wishes to be the successor owner.  You will design the owner’s Exit Plan to achieve these goals.

The benefits to owners of this “Goals First” approach are obvious, but there are several to advisors as well.
 

  • ​Focusing initially on an owner’s exit goals makes it clear that you see your role as helping the owner, not yourself.  You are not selling a service or product; your purpose is to help owners reach their goals.  We call this owner-centric planning.  This approach increases your credibility and an owner’s trust in you immediately.
  • Spending time now on careful goal selection saves time and money later.  Setting goals is the natural starting point for all Exit Planning and execution.  Starting any other way means that, at some point, you and the owner will have to back up and clarify the goals and aspirations you initially overlooked.  
  • You and your client create the construct to include all of the owner’s goals into plan creation.  Choosing a successor is just one goal; not the only goal.  In last week’s article about the foundational goal, we saw that the choice of a successor is not the most important goal that the owner much achieve in order to have a successful exit.  Post-exit financial security holds that place.
  • You and your client focus on the planning and actions needed now.  Once you establish the owner’s foundational goal and the three universal goals, you now may find that no exit path is capable today of taking the owner where he wants and needs to go.  In that case, it is best to focus effort on growing transferable value, minimizing risk and income taxes rather than on taking steps toward a sale or other transfer of ownership interest.
     

Once you help owners to establish their foundational and universal goals you can move to their aspirational goals.  Foundational and universal goals are the framework for the Exit Plan you will design and execute for this owner.  The owner’s aspirational goals dictate the exit path that is best for them.

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