Navigating Emotional Challenges in Exit Planning

Chasing The American Dream

The United States has always been known as the land of opportunity and new beginnings. For many, families moved to the United States with limited resources and built their own businesses from the ground up. As families grew, family-owned businesses grew with them, establishing community ties and contributing to the economy.  

The American economy is largely supported by family businesses, generating over 78% of jobs and contributing to 58% of the country’s GDP (Hiebert, PhD, CFP). But, what happens when a family business owner can no longer run his or her business at its maximum potential? 

What can you do as a business advisor to convince your potential clients that implementing an Exit Plan benefits both the business and their family? 

This blog post explores a study published by Daniel Hiebert, PhD, CFP which focused on   emotional and psychological factors that contribute to Exit Planning challenges in family businesses, and highlights the importance of involving experienced Exit Planners to ensure successful transitions between families and their businesses. To read the full article, click here: Emotional Attachment and Decision by Family Business-Owners to Seek Help From a Succession Planner.

The Emotional Component: Letting Go of the Business

One significant factor compounding the problem of transition failure lies in the emotional and psychological attachment of business owners to their enterprises. Many owners find it difficult to let go, neglecting the necessary planning for a successful transfer. 

In many cases, the relationship between an owner and their business becomes quite similar to a relationship between a parent and their child. Similarly to a parent nurturing their child up until adulthood, owners often build their firms from a blank slate. 

When it comes time for a parent to send their child to college or into the next chapter of life, attachment anxieties arise. The same argument can be made for owners and their businesses as they grow anxious about a business transfer. 

Furthermore, family relationships intertwine with business management and ownership issues, creating a complex web of emotions and goals that can hinder the planning process and further estate planning. The business becomes intertwined with the individual’s identity, making it harder to separate personal and professional aspirations.

Overcoming Emotional Barriers: The Role of Exit Planners

To address the emotional challenges associated with Exit Planning, family business owners must seek the guidance of experienced Exit Planners. These professionals possess a comprehensive understanding of both financial planning along with non-financial goals, allowing them to guide owners through the transition process. 

Research from the article suggests that emotionally attached owners are less likely to seek help from planners, even though their businesses stand to benefit the most from professional guidance.

Key Findings and Challenges:

Various factors contribute to the emotional struggle of letting go and the subsequent planning challenges in family businesses. We’ve highlighted some of these key obstacles below:

  1. Doubt in Successor’s Ability: Owners may cling to their businesses due to a lack of confidence in their successors’ capabilities to effectively run the company. The fear of potential failure can hinder the planning process. As an advisor, it is your job to facilitate the introduction of a well-equipped candidate. Check out our recent blog, Selecting the Best-Suited Successor to the Business Owner for tips and best practices! 
  2. Family Relationship Turmoil: Turbulence within family relationships, conflicts, and disagreements can complicate the transfer of a family business. Emotional dynamics can overshadow logical decision-making, making it harder to plan for the future.
  3. Heirs Choosing Different Paths: When heirs pursue alternative careers or have no interest in continuing the family business, owners may face significant emotional turmoil. For owners who have counted on their child(ren) taking over when the time comes, whether for trust or legacy reasons, it can be disappointing to have to accept the reality of giving up the day to day work that has driven them for years. Owners may struggle to reconcile their desire to maintain the business with their heirs’ divergent aspirations.
  4. Clinging to the Past vs. Embracing the Future: Family business owners who have witnessed their enterprise grow from humble beginnings often find it challenging to detach themselves emotionally from the business. They may view the company as a symbol of their journey, making it harder to embrace change and plan for the future.

The Role of the Exit Planner: An Opportunity to Overcome Emotional Attachments

Exit Planners have a unique opportunity to address the emotional challenges faced by family business owners. Advisors benefit from continuous involvement in the creation of Exit Plans. By understanding the owners’ attachment to their businesses, planners can qualify potential clients based on their emotional readiness for succession planning. 

As an advisor, this presents an opportunity to save time and resources, or work with that owner to overcome their attachment. Avoiding Exit Planning Mistakes can be challenging, check out that blog post for tips and resources to become indispensable! 

Additionally, advisors can work with owners to help them overcome emotional barriers, encouraging them to shift their perspective from the past to the future. This approach not only supports successful business transfers but also presents an opportunity for Exit Planners to market their services effectively. 

You can collaborate with your clients to strategize and plan for the future, providing them with insightful recommendations on how to effectively allocate their time and resources. Owners that gradually detach themselves from the business are able to see the big picture, facilitating a smoother business transition.  

The Bottom Line 

Emotional and psychological factors significantly impact Exit Planning in family businesses. Letting go of a business can be an emotional struggle for owners who have dedicated their lives to its growth and success. Owners often shy away from enlisting the help of experienced advisors the more emotionally attached they are to the business. 

Conversely, failing to plan for the eventual exit from can result in loss of business value, resulting in adverse effects on the company culture and value, local economy, and ultimately the personal goals for the owner’s family.

However, involving experienced Exit Planners who understand the intricacies of family dynamics and possess the skills to address emotional challenges can pave the way for a successful transition. By overcoming emotional attachments and embracing the future, family businesses can secure their continuity, contribute to the economy, and preserve their cultural legacy. 

What to Expect at the 2023 BEI National Conference

The 2023 BEI National Conference will be held this year on August 7 – 9, 2023 at the Four Seasons Hotel Denver in Denver, Colorado. 

Who Attends & What to Expect:

BEI Conference attendees make valuable connections with business advisors from firms of all sizes and regions. With direct access to the highest level of expertise, products, tools and services, this Conference is the perfect platform for Exit Planners to collaborate with a network of high-caliber practitioners and to take away actionable steps for engaging clients and improving their planning process. 

Here’s what you can expect from the BEI National Conference

  • Gain valuable insights and industry best practices from expert speakers
  • Network with the top players in Exit Planning
  • Refresh and refine your Exit Planning strategies
  • Explore the latest methods in client engagement and marketing

Last year, we welcomed nearly 150 Exit Planning Professionals to the event and anticipate a greater number of advisors in attendance this year. The three-day event will be hosted at the Four Seasons Hotel Denver. 

Engaging Sessions: 

The agenda for the 2023 Conference was driven by both feedback from the attendees of previous BEI Conferences, as well as input from a committee made up of current BEI Members. 

Through these collaborative efforts, we are certain to be providing an assortment of programming this summer that will resonate with the variety of experience and industries that our attendees represent. Whether you are a seasoned professional in the Exit Planning space, or looking for more foundational content, you’ll get sessions centralized around the theme of “From Engagement to Action”, ensuring you leave the event with actionable steps to take with your clients.

The variety of session topics range from: 

  • Cash Flow Modeling 
  • Social Selling
  • Tips & Trends in Client Engagement 
  • The State of ESOPs
  • M&A Market Update 
  • Capital Gains Reduction 
  • The Next Generation of Advisors 
  • Marketing to a Niche Audience 
  • Getting Creative with Business Continuity
  • Case Study Examples, and more!

To discuss the details of the agenda and to learn more, schedule a meeting with us at this link
 

Interactive Workshops: 

The first day of the BEI National Conference is optional for attendees and in lieu of sessions, there are two workshops that can be attended for an additional fee. 

The first is the traditional CExP workshop which will be led by BEI Founder, John Brown. Those in the BEI Network who have their Certified Exit Planner (CExP) designation are invited to participate in this workshop where there will be opportunities to share stories, brainstorm business exit strategies, and work together on a variety of different case studies and interactive exercises. 

The second workshop revolves around the concept of client engagement and will be led by Kevin Knebl, esteemed speaker, author, and coach with a lengthy resume full of experience in social media, lead generation, business development, and marketing.  Titled LinkedIn, Social Selling & Relationship Marketing for Huge Sales and Business Success Boot CampTM, this workshop will help attending advisors: 

  • Build a social networking strategy as a component of your business plan
  • How to identify and connect with prospects, clients, networking partners, and alliances 
  • Navigate various methods and mediums of communications to help you stay “top of mind” 
  • Nail the art of relationship-building that will lead to client retention, revenue growth, and more!

World-class Speakers: 

Hand-in-hand with a broad range of session topics, we are dedicated to bringing in a range of expertise and experience when it comes to those presenting content. The speaker lineup ranges from a variety of BEI Members, industry-leaders, strategic partners, subject-matter experts, and more. While there are a handful of repeat presenters such as Stuart Sorkin, Kelly Finnell, Greg Banner and Michael Butler; we also have some fresh faces who are eager to share with attendees too. 

Whether you are new to Exit Planning or a seasoned professional, between panel discussions, break-out sessions, Q&A events, demos and more – there is a speaker that will spark the interest of everyone planning to attend the 2023 BEI National Conference. 
 

Influential Partners: 

The BEI National Conference would not be a success without the immense support of our industry partners. Each sponsor offers tools and services that we endorse as being a value-add to an advisor’s Exit Planning services. Be sure to stop by the exhibit hall to connect and learn more from the following list of 2023 sponsors: 

There’s still time to register! If you would like to sign up to secure your spot for the 2023 BEI National Conference, follow the link below to sign up. 

ESOPs In Action and Establishing a Legacy

What is an ESOP?

Employee Stock Ownership Programs (ESOPs) have become increasingly popular among companies as a way to engage and retain employees while also providing a unique ownership structure. 

This exit path allows employees to own shares in the company they work for, which can result in significant benefits for both the business and the community it serves. 

In this blog post, we’ll explore two examples of ESOPs in action within the Colorado community. 

Benefits of an ESOP: 

The main benefit of an ESOP is that it incentivizes employees to work harder, stay with the company longer, and feel more invested in its success.

ESOP guru and BEI Member, Kelly Finnell had the opportunity to work with Denver Restaurant Group, Edible Beats, to create an ESOP for its employees. 

Kelly and his team at Executive Financial Services  worked to develop an ESOP for Edible Beats Founder, Justin Cucci, and his hard-working team of 325+ employees. Here’s what Kelly and his team were able to accomplish with Edible Beats through the creation and implementation of an ESOP: 

  1. Employee Benefits:  Employees earn shares based on their tenure and salaries. More responsibilities come with a higher salary, and employees in turn get more shares within the company. 

At Edible Beats, every employee regardless of tenure was eligible to be included in the plan. According to Founder, Justin Cucci, new employees must wait a year from the start of employment in order to get vested, and will earn 25% of their shares each year after.  

  1. Improved Retention: ESOPs are a powerful tool for employee retention. When employees feel like they have a stake in the success of the company, they are more likely to stay with the business for the long-term. This reduces turnover costs and ensures that the company retains valuable talent.
  2. Increased Motivation: ESOPs can be a powerful motivator for employees. When employees own a piece of the company, they are more likely to take ownership of their work and feel more invested in the success of the business.

Cucci spoke about how life changing it can be to own shares in a company. Equity provided from shares can assist in purchasing a home or a business down the road. 

“The only thing the shares can’t do is be transferred or sold to another person. Shareholders who want to disinvest must sell their shares back to Edible Beats”, wrote Linnea Covington.

  1. Heightened Productivity: Companies with ESOPs often see an increase in productivity. This is because employees feel more motivated to work harder, are more invested in the company’s success, and have a greater sense of ownership.

“For Cucci, creating the ESOP means he doesn’t have to sell off Edible Beats in pieces, or to an owner who may dismantle the business that he built so carefully. Eventually, the idea is to have the Edible Beats restaurants completely employee owned.” 

For more details on Edible Beats and their recent ESOP strategy, check out this article from Restaurant Hospitality written by Linnea Covington: Denver Restaurant Group Offers Stock To Employees.

Building a Sense of Community: 

So, how does an ESOP positively impact the community? Let’s take a look at a long time Colorado favorite, Beau Jo’s Pizza. 

Chip Bair, the owner and founder of Beau Jo’s pizza restaurant in Idaho Springs, announced at the 50th anniversary celebration that he’ll be selling the business to his employees through an Employee Stock Ownership Plan (ESOP). 

As a Colorado institution that’s served approximately three million pies over the years, Beau Jo’s move to an ESOP will ensure that the business will remain in the hands of employees who have helped make it a success over the years. 

This move demonstrates Bair’s commitment to the community and his employees who have helped make Beau Jo’s a beloved institution over the past half-century. Here’s how: 

  1. Community Involvement: ESOPs provide local employment opportunities to community members and support the local economy. Idaho Springs, CO, has faced an economic downturn as mines across town shut down over the years. Luckily, the newly employee owned pizza joint also calls Idaho Springs home and has been able to provide jobs for many that lost their jobs of the years, establishing Beau Jo’s as a pillar in the community. 

In an article published by Jason Blevins for The Colorado Sun on Employee Ownership and Creating a Legacy, Jason wrote about an Idaho Springs Local, “Alex Dunn worked at Beau Jo’s during college and in the summers when she was a teacher. She started working full-time at the Idaho Springs restaurant 17 years ago and now she is the general manager.” 

Leaving a Lasting Legacy

In addition to the benefits mentioned above, ESOPs are also a valuable tool for building a lasting legacy. ESOPs can help to paint the picture about: 

  1. Long-Term Perspective: When employees own a piece of the company, they tend to take a longer-term perspective. This means that decisions are made with the future in mind, rather than just short-term gains.
  2. Succession Planning: ESOPs can be an effective way to facilitate succession planning. By gradually selling shares to employees, business owners can ensure that the company stays in the hands of those who are committed to its success.
  3. Increased Value: Companies with ESOPs tend to be more valuable, as they have a committed and motivated workforce. This can result in higher profits, which can be reinvested in the business, the community, or other initiatives that support the company’s long-term success.

The Bottom Line

An ESOP can provide significant benefits for both the business and the community it serves. They can improve employee retention, motivation, and productivity, while also stimulating economic growth and community involvement. Additionally, ESOPs are a valuable tool for building a lasting legacy.

Why Should a Business Owner Work With a CExP?

You’ve put in the effort to recognize how essential it is to have a well-structured plan in place when a business owner is ready to leave their business. You know that, eventually, every business owner will want or need to exit their business, whether it’s for retirement, pursuing other ventures, or due to unexpected circumstances.  

This is where hiring a Certified Exit Planner (CExP) can be invaluable to the business owner in helping achieve their goals.

What is a Certified Exit Planner? 

A CExP is a professional who has undergone extensive training and certification in the field of Exit Planning.They have specialized knowledge in various aspects of business Exit Planning, such as financial planning, tax implications, legal considerations, and more. 

They have the skills and training necessary to take individual components of a business plan and integrate them into the exit strategy. Interested in learning more? Check out this article from Yahoo Finance, All About Certified Exit Planners (CExP)!

Follow along for reasons why a business owner should work with a CExP, and why it can be a valuable addition to your Exit Planning toolkit

Comprehensive Exit Planning 

A CExP will work with the business owner to develop a comprehensive Exit Plan that considers all aspects of their business and personal finances. They will help identify financial goals, determine the value of the business, and create a plan to maximize its value upon exit. They can implement a comprehensive plan and bring in all the necessary experts to execute for the best possible outcome based on the owner’s financial and non-financial goals. 

Expertise in Tax Planning 

A CExP can provide advice on tax planning strategies to minimize the business owner’s tax liability upon exiting their business. They will also work with the tax advisor to ensure that the plan aligns with the business owner’s long-term financial goals and minimizes the impact of taxes on the exit. 

Protection of Your Business and Personal Assets

An Exit Plan can help protect the business and personal assets from potential liabilities that may arise during the exit event or after the business owner leaves. A CExP can help identify and address any risks that could impact the business’s value and the business owner’s personal finances.

Increased Likelihood of Success 

Working with a CExP can significantly increase the likelihood of a successful business exit. They can help navigate the complexities of Exit Planning and ensure that the plan aligns with the business owner’s long-term financial goals. 

With their guidance, a business owner can create a plan that maximizes the value of their business, minimizes their tax liability, and protects their personal and business assets.

Peace of Mind 

Having a comprehensive Exit Plan in place can provide peace of mind for both the business owner, their family, and the new owners. A CExP can help create a plan that ensures a smooth transition and allows the business owner to exit their business on their terms, with confidence.

The Bottom Line 

Owners looking to begin planning for their eventual transition out of business should look for advisors that have this level of expertise. Obtaining an advisor that is not only knowledgeable in their specific field, but also in how all the pieces fit together and when the team works together to execute will save time, money, and potentially heartache during the exit. With their guidance, business owners can exit their business with confidence, knowing that they have a solid plan in place to achieve their goals.

A CExP can also help owners to identify potential exit paths, complete due diligence before preparing the business for sale, as well as ensure that the terms of the transfer are in their best interest. In addition, a CExP can help business owners to develop a plan to maintain their legacy after exiting the business.

Whatever the business owner’s goals are, a CExP can help them to achieve them.
If you are an advisor driven to help clients achieve their goals for exiting their business, the Certified Exit Planner Course may be right for you! Take the next step in your Exit Planning career, we invite you to learn more about obtaining a CExP. There is a better way to plan. Let BEI show you the path to success.