Exit Planning for Forever Owners

Fri, 07/29/2022 - 08:03

Exit Planning for Forever Owners

Have you ever worked with a business owner who is so invested in their business it seems they might never leave it?  

For some business owners, this might actually be the case. 

According to the 2019 Business Owner Survey, 81% of business owners want to stop working in their businesses in the next ten years. However, only 56% of those respondents plan to sell or transfer ownership. Which means roughly 25% of business owners have no declared intention, leaving us with a unique subset of business owners we’ve dubbed as “forever owners.” 

Forever owners, as discussed more in a Why We Plan podcast episode, “Planning for Forever Owners,” are those owners who have reasons they want to continue to own the business, but do not want to put in the day-to-day work anymore. They want to leave the business, but they do not want to sell it. They prefer to maintain ownership, but perhaps have become burnt out on the built-up managerial tasks that have been placed on them over the years. They want to reap the financial and legacy rewards of ownership – but do not want to come into the office or deal with the headaches any longer.  

This sentiment, as shown in the survey, typically lies among those in the baby boomer generation of business owners who have been immersed in their companies for a long time. As an Exit Planning Advisor, there are ways to approach this demographic by simply shifting focus and showing them the importance of Exit Planning, even if without a sale or ownership transfer at the end.  

How Exit Planning Advisors Can Approach Forever Owners 

The typical work of an Exit Planning Advisor is aimed at a sale to an outsider or a transfer to an insider involved in the business (a child, key employee, etc.). However, working with these forever owners can be just as important because if the owner wishes to become less involved over time, transitions and plans need to be put into place so the business can carry on without their involvement.  

Essentially, forever owners need to create an Exit Plan, just without an ownership transfer at the end. As an Exit Planning Advisor, the following tips should help you in working with forever owners to make an Exit Plan for this unique path:  

  1. Rephrase the Question 

At the beginning of an Exit Planning conversation, you might ask a prospect, “When do you want to leave the business?”  To a forever owner, their answer is: “never” In order for the conversation to progress from here, it would be wise to rephrase this question in regard to the business owner’s relationship to the business.

Try questions like:

  • What is your current relationship with the business?  
  • What is good and not good about the business?  
  • How do you want that relationship with your business to change in the future? And, do you have a timeline for this change?  

Forever owners may or may not have a timeline as they hope to just stop doing the things they do not want to do anymore on their own terms. However, getting to the root of what management and leadership responsibilities they currently have and those they want to give up eventually will assist you in helping them create a timeline. In addition, knowing these goals will help create actionable items to get them to the relationship they want with their business in the future.  

  1. Focus on Next-Level Management   

If the business owner plans to no longer be around, who will be? No matter the timeline of these forever owners, if they want to stop working one day, there will need to be some work done in improving next-level management. Next-level management, in almost all cases, is the most important value driver that owners should aim to instill in their companies.  

Next-level managers are those who know how to grow a company and can work with customers, vendors, advisors, consultants, and others in the market at levels to which your clients aspire to grow their companies. Forever owners can assess whether current managers can drive growth and bridge any asset gaps that would be needed for them to separate from the business.  

Determining who is going to take the reins and deal with those day-to-day tasks, as well as allocating the time it will take to train them, is a big factor that can be planned for ahead of time.  

3 Tasks for Owners in Building Next-Level Management
  1. Build Business Value

In any Exit Planning interaction, working to improve transferable value – what a business is worth without the owner’s presence and involvement – is what drives a successful exit. Increasing overall transferable business value drives a successful exit, even if not a traditional exit.

Next-level management, for example, will naturally improve business value. However, there are a variety of other Value Drivers that Exit Planners can help forever owners with, such as: diversified customer base, sustainable cash flow, competitive advantage, and recurring revenue, to name a few.  

The Top 9 Ways to Increase Business Value
  1. Business Continuity Planning  

No business owner wants their business to suffer because of their own failure to plan for all possible scenarios, especially when their own involvement in the business is concerned. As an Exit Planning Advisor, you know firsthand what it takes to coordinate planning efforts that include a variety of considerations, risks, stakeholders, and timelines. 

 Business continuity, which is at the core of Exit Planning, is being able to keep a business running through unexpected events and without the owner at the helm (which is a forever owner’s dream!). Exit Planning will help ensure that proper “what if” initiatives are put into place to mitigate risks and put processes in place in case of emergencies.  

  1. Other Considerations:  

Shared Ownership 

Forever owners want to maintain their stake in the company, but perhaps they would be open to shared ownership if presented with an opportunity. Without a sale at the end, it can be hard for business owners to replace cash flow and compensation of a well-run business as a means of income when they leave. 

With shared ownership, business owners can reallocate the percentage of ownership as the business grows. For example, with an incoming co-owner, their percentage of ownership grows equal to the growth they accomplish. With this structure, the remaining ownership of the forever owner maintains value as the company grows.  

Alternate Exit Options  

Business owners have plenty of options in terms of business exit paths. For forever owners who intend to leave the business but maintain ownership, they might not care to hear about other options. However, as an Exit Planning Advisor, it is important to have knowledge of each of the exit paths to share an alternative path that would be better suited. By getting to know their post-exit goals, it may deem a conversation about an exit path that might help them reach their goals in a way they hadn’t considered.  

The Bottom Line  

While “forever ownership” may not be a traditional exit path, it is still important to put in the Exit Planning work. Even without an ownership transfer, aspects of Exit Planning come into play so that the business continues to be successful when the owner chooses to stop working. By focusing on the relationship, the owner has with the company, building business value and next-level management, and securing a business continuity plan, Exit Planning Advisors can ensure that forever owners are prepared to separate from their business on their terms.  


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