Month: March 2023

The idea of creating a full-fledged Exit Plan may seem daunting and expensive to a business owner. However, as we discussed in our previous blog post, the benefits of having a well-crafted Exit Plan far outweigh the costs of time and money. In fact, developing a comprehensive plan with your business owner clients can help create a sustainable business, maximize its value, and reduce risks. 

What exactly does an Exit Planner do to create and execute the best possible Exit Plan? 

As a business advisor, you know that planning for the future is critical to ensuring a successful outcome. It’s one thing to engage prospects and persuade them of the necessity of your expertise in planning. But when it comes to crafting and executing a suitable plan, it can be a complex and complicated process that requires a lot of preparation and collaboration. At this point, you’ve done the work to attract your client in the following ways: 

• The Discovery Meeting
• The Engagement Meeting 
• Overcoming Fee Apprehension

In this blog, we’ll conclude the Exit Planning Process series with an introduction into the Representation Process and the four key steps involved in creating an executable Exit Plan.

Step 1: Hold Data Collection Meetings

The first step in the Representation Process is to hold data collection meetings with the business owner(s). During these meetings, you will:

• Set goals and gain a thorough understanding of the owners’ aspirations, feelings about their businesses, and future plans with and without their businesses. 
• Collect the data necessary to draft the initial business valuation, initial cash flow projection, and financial needs analysis. 
• Ask owners to introduce you to their existing advisors who they want involved in the creation and execution of their Exit Plans.

This step typically takes about 30 days to complete and sets the foundation for the rest of the Representation Process.

Step 2: Create a Discussion Draft

An Exit Planning Advisor knows that no plan can be carried out alone. A comprehensive Exit Plan involves the collaboration and cooperation with multiple advisors, various delegated tasks, and a long-term strategy to ensure a successful business transfer for the owner client. 

Using the information collected during the data collection meetings, you’ll consult members of your Advisor Team and provide them with a Discussion Draft of the Exit Plan that includes your recommendations. Or, for  BEI Licensed Members who use the PlanIt Planning software, recommendations will be computed based on the inputs provided using data collected and added into the program. 

Regardless of how the planning recommendations are determined, using them to form a Discussion Draft is important as it serves as a chance for owners and members of your Advisor Team to: 

• Discuss planning recommendations that will allow owners to achieve their Exit Planning goals
• Allow an open discussion about possible alternatives based on each team member’s background, knowledge, and experience with the owner 

This draft gives owners and advisors an organized and concise point of reference for Exit Planning discussions. The Discussion Draft also helps owners (and advisors) avoid setting unrealistic expectations for the Exit Planning Process and what it entails. 

Step 3: Convert the Discussion Draft into a Working Draft

After owners and all advisors have reviewed the Discussion Draft and offered their ideas and recommendations, you’ll prepare a Working Draft. As the Exit Planning Advisor, you’ll assign recommendations to the appropriate advisors and set feasible timelines and due dates to complete each task and each phase of the plan. Advisors will work directly with owners and/or other advisors to flesh out their recommendations and return them to the Exit Planning Advisor. 

As mentioned above, BEI’s PlanIt software facilitates plan creation and revision. BEI Licensed Members can use templates created with BEI’s PlanIt software to create recommendation summaries.

Step 4: Circulate the Action Item Checklist

The final step in the Representation Process is to circulate the Action Item Checklist. This Checklist is a tool that business advisors use to keep all members of the Advisor Team on task and on time, and matches each task to an advisor with a set deadline.

At BEI, we often refer to the Exit Planning Advisor as the “quarterback” of the Exit Planning Process as it is up to them to make sure every step goes according to the agreed upon timeline. Each member of the Advisor Team completes their assigned recommendations and returns them to the Exit Planning Advisor for inclusion into the Final Plan.

The Bottom Line

Using the Representation Process ensures all relevant factors are considered, and the appropriate advisor is tasked with making and implementing the appropriate recommendations. 

Whether creating a comprehensive plan or a single phase, the Representation Process produces straightforward recommendations for owners and business advisors. It allows owners to choose to directly address a particular concern or engage in a comprehensive process to transfer their company on a date they choose for an amount of cash that achieves their goals.

Reassuring Business Owners during the Representation Process 

It is not uncommon to still be faced with apprehension from owners, even once you have moved into the planning portion of an Exit Planning Engagement. 

For many business owners, it’s crucial to ensure that their business legacy continues after they’ve left the company. This means creating a comprehensive plan that outlines what will happen to the business, its assets, and its employees after the owner departs is essential to securing the desired impact. 

A well-crafted Exit Plan ensures the business continues on with the same level of success that it had under the owner’s leadership while also protecting their personal assets and minimizing tax liabilities.

You nailed the Discovery Meeting and breezed through the Engagement Meeting with your client. 

Now it’s time to discuss fees. 

As a financial or business advisor, you must be prepared for the inevitable question, “How much will this cost me?” Simply quoting a price will not suffice. You need to set the stage for the conversation by explaining the value and benefits of Exit Planning. 

Before we dive in, be sure to check out the first two blogs in this series: The Discovery Meeting  and The Engagement Meeting are essential to the Exit Planning Process!

Benefits of an Exit Plan

An Exit Plan is not just about selling the business for the highest price possible. It’s about creating a roadmap for the future of the business, its employees, and its owner. An Exit Plan helps business owners: 

• Identify their goals, objectives, and concerns, and then develop a strategy to achieve those goals while minimizing risks.
• Create a sustainable business that can continue to operate even without them. 
• Create a succession plan, which ensures that the business continues to thrive even after the owner retires or leaves.
• Maximize the value of their business. By identifying the business’s strengths and weaknesses, an Exit Plan helps the owner create a strategy to maximize the business’s value, making it more attractive to potential buyers or investors.
• Protect their assets and reduce risks. By creating a comprehensive estate plan, business owners can ensure that their assets are protected and passed down to their heirs without any issues. 
• Identify potential risks and develop strategies to mitigate them, ensuring the long-term success of the business.

Overcoming Advisor Apprehension

One of the major concerns that advisors have when it comes to Exit Planning is naming the price. Charging $2,500 for a financial plan, estate plan, or a tax return is one thing, but asking for $10,000 to $50,000 for an Exit Plan can be quite intimidating for both the advisor and the business owner.

It’s understandable why advisors might be apprehensive about quoting value-based fees when they’ve never done it before. Moreover, newly minted advisors might expect business owners to be shocked at the price, making them even more apprehensive.

However, it is essential to remember that creating an Exit Plan is a complex and time-consuming process that requires a lot of expertise, knowledge, and experience. It is not just about filling out forms or providing generic advice. Instead, it involves a deep understanding of the business, its owner’s goals, and the current market conditions.

Therefore, charging a premium for such a service is justifiable. Properly explain to the business owner that the benefits of planning far outweigh the costs. Advisors must help their clients understand that the financial and emotional rewards that they will receive from an Exit Plan far exceed the fees for creating one.

Pricing Strategies

There are a number of different pricing strategies that you can use when quoting the price of an Exit Plan. Determining a fee structure will depend on the owner’s unique situation and needs. Let’s take a closer look at some of these pricing strategies.

Exit Planning Advisors use different strategies to offer their services to business owners: 

• The All-In Strategy quotes a single price for expertise, advice, and counsel for plans costing $3,000 or less. 
• The 50/50 Strategy requires 50% of the fee upfront for plans costing between $7,500 to $12,500. 
• The Monthly-Retainer Strategy involves small monthly payments for a specified period, usually one year.
• The Phased Exit Plan Strategy breaks down the planning process into manageable stages. 
• The Hourly Pricing Strategy is not recommended for Exit Planning since pricing based on the overall value of the plan helps owners understand its true cost and benefits.

For a more in depth overview of various pricing strategies, check out our blog post: Exit Planning Fees: Strategies and Tips for Advisors!

The Bottom Line

Creating an Exit Plan is a vital process for any business owner looking to retire or transition out of their business. While the cost of an Exit Plan might seem hefty, the benefits that business owners will receive far outweigh the costs.

Advisors must understand that charging a premium for such a service is justifiable, given the complex and time-consuming nature of the process. Moreover, advisors must help their clients understand the benefits of an Exit Plan, which include creating a sustainable business, maximizing the business’s value, protecting assets, and reducing risks.

Advisors new to Exit Planning are likely to be more concerned with the cost of the planning than their owner-clients. Therefore, it is essential to properly educate both the advisors and the business owners on the benefits of an Exit Plan, ensuring a smooth transition and a successful future for the business.

Exit Planning is an essential process for business owners who are looking to exit their business on their own terms. It involves a series of steps and discussions that help owners plan their exits and maximize the value of their businesses. 

In last week’s blog, we covered the ins and outs of the Discovery Meeting and what it means for you as the advisor and your business owner client. This week, we’ll review the Engagement Meeting.

The Engagement Meeting is a critical step in the Exit Planning Process. In this meeting, you will have the opportunity to convert your prospects into clients by discussing the goals of the business owner and how you can help them achieve those goals. 

What is the Engagement Meeting?

The Engagement Meeting provides business owners with a valuable opportunity to explore the steps necessary to enhance their business value and exit on their own terms. Throughout the meeting, it is essential to have a client-centric discussion, focusing on the owner’s goals and how you, as the advisor, can assist them in accomplishing these objectives. 

As the business advisor, your role is to help your client envision the process and outcome of the Exit Planning engagement for both themselves and their business. It is only after carefully reviewing their individual circumstances and recommended actions that you should address the matter of fees. 

Let’s look at the three meeting topics within the Engagement Meeting:

1. Exit Plan design

The first topic of discussion in the Engagement Meeting is Exit Plan design. Business owners can get busy and may forget the details of a previous conversation, but utilizing the illustration created in the Discovery Meeting will help to keep the previous conversation top of mind with your prospect. 

The illustration will also help you to discuss potential plan designs and recommendations, the bird’s eye view of the path to exit, and provide suggestions for action along the path. Ultimately, you will show owners the many moving parts of Exit Planning, and that you have the experience to create and manage the clear action steps.

2. Working with other advisors 

The second topic of discussion in the Engagement Meeting is communicating and collaborating with other advisors to spur owner engagement. Exit Planning is not intended for one advisor to tackle alone; it requires a team of advisors and experts to implement the recommendations that will guide your clients to a successful business exit. 

For many Exit Planning Advisors, they find that starting with the client’s existing advisors is a strong place to start. It is essential to eliminate any obstacles to the client’s progress. This can be done by assessing team member gaps. These gaps tend to change over time as the process proceeds. Taking it one step at a time and adjusting the structure of the team as the engagement progresses will streamline meetings, and thus save time and money.

As BEI Member Eddie Drescher shares, “My job as the Exit Planning Advisor is to try to eliminate any impediments to them moving forward.  Their advisor teams are not usually complete before beginning the Exit Planning Process. It takes time to determine advisor team member gaps, and they usually evolve as the process plays out. I like to take it one step at a time and add/subtract advisor team members as the engagement progresses.” 

3. Fees and the Engagement Agreement 

The final piece of discussion in the Engagement Meeting is your fee structure. You have spent the bulk of this meeting and the previous setting the stage for where you will bring value to the owner, their business, and the process ahead. 

Additionally, utilize your existing relationships with advisors in your network who will be part of the Advisor Team to explain to the business owner that you can streamline meetings and reduce time and cost, as they are already familiar with your process. 

While discussing pricing with your clients may be a challenging conversation, it is crucial to overcoming concerns regarding the cost of an Exit Planning engagement.

The Engagement Meeting is an essential step in the Exit Planning Process, and provides an opportunity for you to convert your prospects into Exit Planning clients. Through consistent communication, working with other advisors, discussing the Exit Plan design, and determining your fee structure, you will be able to help the business owner visualize what the process and outcome will be for their business. 

Remember, Exit Planning is a team effort, and it takes a team of advisors and exports to implement the recommendations that will take your clients to their ideal exit. In next week’s blog, we’ll dive deeper into pricing considerations when working with clients and strategies for addressing concerns related to the cost of Exit Planning. See you next week! 

The first step in beginning an Exit Planning engagement with a business owner is to secure a meeting with them. In Exit Planning, there are typically two meetings with a potential client: the Discovery Meeting and the Engagement Meeting. You may be asking yourself what the difference is between these meetings and why they are both needed. Over this blog and the next, we intend to answer just that.  

Why are both needed?

Business owners may not be aware of the benefits of Exit Planning and may have misconceptions about what it entails.  Most owners aren’t sure that Exit Planning makes sense for them right now, have misperceptions about what it means for them and their business, and don’t know how long it will take to create and implement a plan. This lack of knowledge gives you an opportunity to educate owners and differentiate yourself from other advisors.

What is the Discovery Meeting? 

During the Discovery Meeting, your goal as the business advisor is to understand the owner’s goals and aspirations, and determine whether you can help them achieve those goals. Since this meeting ultimately shapes an owner’s first impression of you, it should be focused on what solutions you can provide to the owner to help with the pain points that keep them up at night. You must explain the benefits of Exit Planning to both owners and their companies and show prospective clients how they will benefit from working with you.   

To make the most of the Discovery Meeting, you should aim to achieve the following objectives: 

1. Develop owner trust and confidence in your ability to help.

Think about the last large product purchase you made. You might have read reviews or done extensive research on the reliability of the product. As consumers, we do this because we want to trust that our money is being well spent on a product we can trust. 

The same is true for business owners when purchasing services. Owners want to have confidence that their money is being well spent and bringing value into the business.  

Business advisors gain trust and confidence with their prospects by asking personal questions about the business. Find out why the owner started the business, what challenges they’ve been able to overcome, the growth path of their business venture, and how they are feeling about their role in the business today. Demonstrating a genuine interest in an owner’s connection to their business will open them up to having a conversation with you about what their post-exit future looks like without the business. 

2. Determine if you’re able to help and if the owner is willing to receive assistance.

To find out if an owner wants help and if you are the right advisor to help them, you must once again ask the right questions. This time, your questions are more oriented around Exit Planning, such as, “Who would run the company if something unexpected were to happen to you today?”  

Some owners want to slowly exit over many years, while others will want to exit by the end of the month. It’s your job as the advisor to clearly define what a business exit means and looks like to the owner so you can explain to them how you’ve helped other owners in their shoes. 

3. Explain the Exit Planning Process and its benefits in a manner that owners understand. 

Using visual aids to explain a business process helps owners understand the big picture and the steps needed to achieve their exit strategy. This approach creates an emotional buy-in by providing prospects with a clear image of the desired outcome. In addition, it showcases your expertise in this field and establishes you as the go-to advisor to guide owners through the process.

Many owners will need to sit with this information before committing to jumping into doing an Exit Plan. In our next blog, we’ll cover what an Engagement Meeting looks like so you can turn your prospect into a client and begin planning. 

Takeaways

• Start the Discovery Meeting by asking questions about the owner’s business and goals.
• Develop trust and confidence by showing a genuine interest in the owner;s connection to their business.
• Listen carefully to owners’ concerns and provide suggestions for action only when appropriate.
• Keep your explanations simple and visually illustrate the Exit Planning Process.

Ready to discover a better way to plan with BEI? Schedule a meeting with us to talk more about how to best prepare for Exit Planning conversations. 

Last week’s post reviewed 4 ways to engage owners in planning and get them to act towards Exit Planning. No matter which tactic you take with your prospective clients, it’s also important to understand why owners are hesitant to start the process. In today’s blog, we’ll look at 4 common misperceptions about planning so you can match your tactics with the reasons why owners are holding back. 

1.     I am too busy to plan.

Owners are justifiably focused on present issues in the business and managing the day-to-day operations. In their minds, their exit from the business is far in the future and owners believe they will make time to plan later. In these cases, relating tasks to an owner’s immediate concerns can really make an impact.

By doing a quick assessment, you can visually show them their most pressing issues today, whether that be growing business value or hiring key employees. By alleviating those concerns now, you are not only freeing up their time in the present, but you are also freeing up time in the future for more planning endeavors. 

2.     I don’t think I need to plan.

Many owners don’t believe they need to plan because they don’t fully understand their own assumptions on the value of their business and their current financial resources. Further still, many owners don’t realize how their involvement as owner impacts the value and how much it might decrease once they leave. 

Oftentimes, by showing that gap, you can better illustrate the time it would take and the steps necessary to grow business value. If you can urge owners to start with improving operating systems and getting key employees in place so that the business can run without them, they will be in a much better place when it comes time to make the transition.  As a bonus, they can start to envision what to do with their free time post-exit. 

3.     If it was important, one of my advisors would have reached out about it.

While Exit Planning may not be top of mind for owners, as an advisor wanting to grow in this area of planning work, it should be top of mind for you. Don’t assume they are talking to their other advisors about Exit Planning and don’t wait for them to bring it up. 

Be at the forefront of their minds with the content you send and the questions you ask. By doing this, regardless of if they want to do one phase of an Exit Plan or a comprehensive plan, you will be the trusted advisor they seek.

4.     When I’m ready to exit, I’ll take action. 

Owners frequently underestimate the amount of planning needed for a successful business exit. Transferring a business to the person the owner chooses, at the time they want, and for the money the need takes spending resources today. According to the BEI 2022 Business Owner Survey, 35% of owners indicated that not believing they needed to plan for their exit yet was standing in their way of doing planning work. 

There are several ways to approach this misperception. One would be to offer to review their business continuity instructions. Even if their business exit is too far into the future for the owner to commit to planning today, planning for the scenarios that would take them out of the business today is still valuable. 

The Bottom Line

In conclusion, it is not uncommon to be faced with skepticism when proposing Exit Planning to your business owner clients. However, with persistence and proven strategies, conversations with owners get easier when you can show them the long-term value of both planning for their future and working with you to do so. 

To best determine whether an ESOP is a viable Exit Path for your clients, it’s best to know the general advantages and disadvantages present in all ESOPs.

Continue reading “ESOPs: The Good, The Bad, and The Ugly”