Exit Planning Tools for Business Owners

Baby Boomers

Exit Planning in a Crisis

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Why would you be exit planning in a  crisis? At the height of the economic expansion (a few months ago in late 2019) I was reviewing a company’s financial statements. Their sales were stagnant, and profits were minimal. When I asked the owner why his business hadn’t grown, he responded, “Well, the Great Recession hit our industry pretty hard, you know.”

planning in a crisisTake note that it wasn’t his fault. He was in a hard-hit industry, and the economy dealt him a bad hand. He ignored the thousands of businesses just like his that had grown and prospered in the last ten years.

Once you hunker down behind “It’s not my fault,” it’s easy to stay there too long. First you are glad that you survived. Then you are glad to be making a little bit of money again. Then you wait for the same conditions that made you successful before. If they don’t come, it’s not your fault.

In the meantime, others are coming out of the downturn firing on all cylinders. They used the slow time to get ready; to plan what comes next. When the door of opportunity opened again, they were ready.

Baby Boomers’ Double Whammy

The coronavirus is especially lethal in senior citizens. Many of those are Baby Boomer business owners. They have also suffered a double financial hit. Their retirement account balances are lower, and their businesses, whether closed or just slow, are worth less then they were a few months ago.

Many owners will try to kick the can down the road. “I’ll spend a few years building the business back up, then I’ll sell it.” For some, that was their plan after the recession. Unless you have something new up your sleeve, you may be waiting a long time for the right buyer to come along. In the next economic cycle, you may wait too long. You can only kick that can so far.

If you are a Baby Boomer, the time to be planning your exit is now. That goes double if you are sitting in your house wondering what comes next. Most entrepreneurs started a business because they wanted control over their lives. When there’s an event that takes away that control, your best response is to get it back.

Exit Planning in a Crisis

Your exit plan starts with some basic questions.

  1. Do I know how much I need to retire, with a professional analysis of my living expenses, life expectancy and inflation assumptions?
  2. Do I know how much my company is really worth, and who is most likely to pay me that amount?
  3. If #2 doesn’t meet the needs of #1, do I know how long, and what it would take, to get my business there?
  4. Do I know all the options for monetizing my business, including a sale to employees, another entrepreneur or professional acquirers?

If you are a Baby Boomer, unless you are exit planning in a crisis, you risk a discussion in 2025, or 2028, or 2031 that starts with “Well. the coronavirus hit our industry pretty hard, you know.”

There is a network of advisors in the USA and Canada who specialize in a reasonably priced, 90-day planning process for small business owners, and who use a suite of online tools to help you work through all these questions remotely. They can help get you started right now.

For a listing of these advisors, go here.

John F. Dini, CExP, CEPA is an exit planning coach and the President of MPN Incorporated in San Antonio Texas. He is the publisher of Awake at 2 o’clock, and has authored three books on business ownership.

Quarterbacking is Not Exit Planning

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Quarterbacking is a popular term when exit planners are talking to clients. It’s supposed to invoke a vision of someone who is in control. Think about a Tom Brady, Aaron Rodgers or Patrick Mahomes standing tall in the pocket, surveying the offense and defense unfolding before him.

There is a real problem with using “Quarterbacking” when referring to your exit planning professional team. The quarterback calls the plays. The job of the rest of the team is to run them as instructed.  I’ve yet to meet a CPA or attorney who thinks that is the best way to develop a client’s exit plan.

Teamwork

Exit planning, like no other form of professional consulting, is a team sport. When I am engaged by a client, I have the responsibility of defending his or her long-term objectives. The other advisors, who may include an insurance agent, financial planner, or appraiser, all have experience to lend to the process.

We can modify a plan multiple times and in many ways. The accountant may have some excellent restructuring ideas to save taxes. The attorney can add terms to a buy/sell agreement to protect the owners from having their equity unfairly valued by the IRS, or from having it pass to parties outside the company.

The insurance agent can mitigate the risk of illness or death derailing the timely transfer of the business, or of the surviving family being left destitute. The appraiser can develop valuations that take advantage of the discounts permitted under IRS guidelines.

Each of these professionals has a role, and should be able to add their skills to the process, with only one exception. They should not be permitted to do anything that interferes with the owner’s objectives. That’s the responsibility of the exit planner.

The Alternative to Quarterbacking

I prefer to think of the exit planner’s role as analogous to that of an orchestra conductor.

quarterbackingThe exit planner may not be as skilled in any specific discipline as the others on the team. He may know something about tax planning, or legal structuring or insurance. She probably knows a bit about valuation and even more about contracts.

But, like the conductor, he or she doesn’t know more about any of those subjects than the advisor who spends full-time in that area.

No one expects the conductor to step off the podium for a violin solo, or to fill in for the French Horn.  In fact, you don’t even want the conductor to tap the triangle for that one little note in the pause. If he did, he would be distracted from his primary role of keeping all the musicians on the same page.

Having one advisor coordinate the contributions of others greatly improves the overall result. Expecting him or her to dictate details outside his area of expertise is foolish. Expect your exit planner to lead without quarterbacking.

John F. Dini, CExP, CEPA is an exit planning coach and the President of MPN Incorporated in San Antonio Texas. He is the publisher of Awake at 2 o’clock, and has authored three books on business ownership.

Exit Planning Checklist for 2020

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The beginning of a new year is a great time to review your Exit Planning Checklist. All business owners will stop being business owners at some point.  So, there is no better time to begin planning for the inevitable than the present.  The earlier you begin planning, the more options you will have for a successful exit.

exit planning checklistHowever, like any strategic plan, it can be difficult to know how and where to begin.  With the start of the new year it’s also an ideal time for us to publish a basic “To-Do List” that will serve you in considering that most significant event as a business owner…your future exit.

DECIDE WHERE YOU WANT TO GO

Establish Clear Goals and Objectives for Exit and Your Life After Exit.

  • When do you want to leave the business? Whom do you wish to transfer/sell the business to?
  • What are your values-based and legacy exit goals?
  • What is your post-exit “life-plan”? Business owners can often regret leaving when lacking a plan for life that replaces the sense of purpose and meaning they experienced in building their business.
  • Update your Personal Financial Plan. Find out how much $$$$ you will need post-exit to do all you want to do. Is there a gap?

ASSESS WHERE YOU ARE 

Without Accurate Data All Planning Becomes Meaningless.

  • Get an accurate Business Valuation. If the business is your largest asset shouldn’t you know what it really is worth to potential buyers?
  • Assess your business Value-Drivers and areas of Risk.
  • Review your Business Continuity Plan for life transitions and unexpected death or disability. Co-Owners would include a review of their Buy-Sell Agreement to ensure alignment with the current goals of all owners.
  • Review Estate Plan to ensure alignment with exit goals.

 DESIGN AND IMPLEMENT A PLAN

Build Transferable Value and Enjoy a Future Exit On Your Own Terms and Conditions.

  • Which Exit Route will best accomplish your goals? Sale to Third-Party | Sale to Insiders | Transfer to Family Members | Sale to ESOP | Absentee Owner.
  • Focus on growth and profitability today. At the core of tomorrow’s successful exit plan is today’s profitability and plan for growth.
  • Strengthen business value drivers. An owner with a sellable business will have more freedom in life and options for exit.
  • Update a strategic financial plan for the business.
  • Do you have the right Team of Experienced Advisors for plan design and implementation?
  • Who will Manage the Exit Planning Project?

The most important thing you could do in 2020 would be to GET STARTED AND GET HELP if you have yet to do so.  If you wait until you’re ready to exit to begin planning, you won’t be ready and neither will your business.  Keep in mind, that “You don’t know what you don’t know” and, like in all other areas of life, that could end up being disastrous.

There is much at stake during this most significant event in your life as a business owner.  Take steps in 2020 to be as responsible and successful in planning your eventual exit as you have been in running your business. You can start with this Exit Planning Checklist.

Guest Contributor Pat Ennis is the President of ENNIS Legacy Partners (ennislp.com). The mission of ELP is to help business owners build value and exit on their own terms and conditions.

 

Baby Boomers’ Influence – Still Strong

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There is ample evidence in the marketplace that Baby Boomers’ influence is still powerful. From walk-in tubs to stand-up bikes, and from pharmaceutical commercials to river cruises, Boomer tastes are catered to in every market.

We all know the sterotypes of the “typical” Boomer. Goal oriented, workaholic, spendthrift, and oriented towards accumulating material evidence of their achievements. They identify work and position with their value in society. We have also discussed often in this space the issues of employers who have to replace the corporate knowledge base of retiring Boomers.

Clearly, one way to keep the economy moving upwards is to encourage Boomers to work longer and accumulate more. The more they earn, and the more they spend, the better we all fare. (Except, of course, for the Gen Xers who are behind them in the promotion queue.)

Boomers Influence Legislation

One really obvious example of this is the SECURE (Setting Every Community Up For Retirement Enhancement) Act, which took effect on January 1, 2020. It was missed by many, gliding through as a budget attachement, and absent the histrionics that seem to accompany any legislation in Congress.

What could be so important and universally desirable that both parties would happily cooperate? Getting the Boomers to work longer. How do you accomplish that? Give them the opportunity to accumulate even more than the $17 Trillion (one year’s GDP) that they already hold in personal assets.

The SECURE Act is aptly (if somewhat elaborately) titled. Boomers who are more financially sound will be less of a burden on the public sector. That’s the Community benefit referred to in the title. In addition, as Social Security feels the pinch of paying back those who funded the first two generations of beneficiaries, it theoretically will reduce the outcry when benefits are reduced.

The New Terms of Retirement

The act doesn’t provide Boomers with additional benefits. Instead, it gives them the chance to pay more into the system. Here are the major changes.

  • The age at which you must start taking Required Minimum Benefits from your employer or individual retirement plans has been raised from 70 1/2 to 72 years old. (Social Security benefits, however, still max out at age 70- even though you would still have to make SS contributions.)
  • You can continue to pay into your retirement plan of any type for as long as you want- there is no longer a cutoff age for contributions.
  • Small business owners may now group together to offer retirement plans. Formerly, many were too small to bear the costs of having a 401K, for example.
  • Part time employees (read: semi-retired Boomers) can now participate in employer retirement plans.
  • Employer plans may now offer annuities for lifetime income among their options.
  • Inherited retirement accounts must be spent in ten years- they cannot be rolled to another generation.

Are you getting the message? We’d like you to to work longer, pay more in taxes, and (at least theoretically) leave more behind when you go.

Why is this indicative of the Boomers, influence? Because that’s exactly what we seek. With health care, exercise and nutrition so much better than for previous generations, we were saying that 60 is the new 40. Now we are saying that 70 is the new 50.

No one is forcing us to work longer. They are just recognizing that many of us want to. C’mon Boomers, you fueled the longest sustained expansion is US history (40 years from 1968-2008.) Can’t you do just a little bit more?

John F. Dini, CExP, CEPA is an exit planning coach and the President of MPN Incorporated in San Antonio Texas. He is the publisher of Awake at 2 o’clock, and has authored three books on business ownership.

Why Plan Now? Exit Planning for Small Business

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Owners ask all the time, “Why Plan Now?” “I’m not planning to leave my business for years. I feel good, and I still enjoy my business. I’m not sure what else I would do. Besides, if my company is only going to sell for two or three times earnings, I can make more than that by sticking around.”

All are valid arguments. Baby Boomers, the youngest of whom turned 55 this year, are working longer and are more active well into their 60s and often into their 70s. The term “next career” describes the growing portion of the population who are choosing another full-time activity after leaving their jobs or businesses.

Why Plan Now?

That said, there are good reasons why every Baby Boomer business owner should have a documented exit plan.

why plan now?

  1. A plan is not an action. As the late, great Yogi Berra said, “If you don’t know where you are going, you may wind up somewhere else.” The process of deciding what your ultimate outcome should be gets you mentally prepared, but implementation only starts when you say so.
  2. It will focus your efforts. Say, for example, you decide that ultimately you want to sell to your employees. Your investments in hiring and training will look very different than if you plan to sell to a large competitor who would shutter your operation.
  3. It will make you a better business owner. Thinking through the things that drive value in your business, (employees, products, and customers,) will inevitable highlight what could be improved. You will look at your business through a buyer’s eyes. That lends a whole new perspective.

The first four parts of this series dealt with various exit scenarios. This is about your timing.

How to Start

There’s a ton of resources both in past articles on this site (indexed by topic) and in our free library of planning tools and educational materials at www.YourExitMap.com. Many Financial Planners, Bankers and CPAs are getting one of the certifications in exit planning (Either the Certified Exit Planning Advisor – CEPA or the Certified Exit Planner- CExP.) That equips them to have a broader conversation that just focusing on their specialty.

Chapters are springing up of professionals who specialize in exit planning. Booth the Exit Planning Exchange (XPX) and the Exit Planning Institute (EPI) regularly offer seminars for owners considering their exit strategy, Between the two there are chapters in about 40 US cities.

Try putting the term “Exit Planning” in an Amazon book search. You’ll have a choice of about 25 titles.

Finally, there’s my standard (if somewhat cliched) answer to the question “Why plan now?”

Because sooner or later, every owner leaves his or her business, whether voluntarily or otherwise. It’s only the biggest financial event of your life.

John F. Dini, CExP, CEPA is an exit planning coach and the President of MPN Incorporated in San Antonio Texas. He has authored three books on business ownership.