By Dana Holmes, CEPA
In the last installment of Exit Planning Corner, we detailed the exit planning process. We explained that development of a good exit plan is simply good business strategy: A business that is truly ready for exit is a business that optimizes its value every day. Read the complete article. But, business owners are typically extremely busy and can be surrounded by advisors who sometimes seem to give conflicting advice. So how can he or she effectively develop a coordinated plan? The first step is exploring the various advisory roles that should be represented on the team, and then, discussing how they can work together.
Many business owners already have one or more trusted advisors, and they should absolutely play a role on the exit planning team. They already know the owner and the business, and they can provide a great deal of context for other planners. But who else should be involved?
A business owner must address two underlying questions in an exit plan. (1) What is the plan for the business (e.g., how to maximize its market attractiveness and its realizable value)? And (2), what is the personal plan for the owner after the transition (e.g., how will exit liquidity be invested, and what will life look like after transition)? The roles of advisors should be split along these same lines.
The team for the personal side will include:
- an estate planning attorney to assist in developing a structure (wills, trusts) for meeting family and charitable goals
- advisors with expertise regarding charitable giving (foundations, etc.) to help determine the most effective way to achieve the philanthropic goals of the business owner or family
- a wealth management or financial planning advisor: Both planning and actual portfolio management services are critical to long-term life-planning and maximizing return on liquidity generated by an exit event.
- insurance specialists to consider tools for all three topics above
- a “life coach” advisor to assist in the development of personal plans beyond the financial realm
This group will engage with the business owner to position his/her activities and assets to match personal and family goals. The decisions made on this side of the exit planning process will often provide a foundation for business-side decisions as well. For instance, if the business owner has a sound, already funded plan for family and estate concerns, he or she may be able to pursue a partial recapitalization (instead of a full exit), affording the owner the opportunity to continue growing the business with less personal risk.
The team for the business side of the exit plan has different roles:
- An exit planning “coach or team leader” to aid in evaluating inputs, establishing a game plan and providing project management
- a valuation specialist to provide a baseline valuation as the basis for planning; often the valuation is a key factor in the personal-side planning, as well. The business owner may discover that the current valuation doesn’t match goals, prompting an analysis of actions that may be taken to improve value — usually by comparing the company to top performers in its industry.
- an operational consultant to address efficiency issues uncovered during the planning process (improving internal systems, production efficiency, sales team management, etc.) to improve metrics and drive up the value multiple before exit (“value acceleration”)
- insurance specialists to assess and de-risk the business both for current operations and for future sale
- a transaction attorney to develop documents that ensure successful transactions and protect against future risks
- a tax advisor (frequently both accountant and attorney roles fall into this category) to aid in maximizing actual return from an exit event. Pre-planning is often critical to ensure efficient tax strategies.
- an investment banker or business broker to assist in development of the go-to-market strategy, in transaction negotiations and with due diligence. Also, this advisor may provide input into value acceleration planning.
Shrewd business owners realize no single advisor is equipped to provide all the input needed to build a viable, effective and efficient exit plan. The respective skill sets of these advisors may vary widely, and their “siloed” advice could very well be contradictory. They may not give appropriate advice for the specific situation unless they are involved simultaneously in the planning process. Therefore, the success of the entire plan may hinge on facilitating this collaboration.
Any one of the advisors can fulfill the “project manager/team leader” role, but appointing the right individual as the planning coordinator is of utmost importance. The various advisors are not competing with one another, but they often remain concerned about maintaining their established relationship with the business owner. A key function of the planning coordinator is getting each member of the planning team to contribute effectively in their specific area of expertise. Additionally, this role entails weighing the pros and cons of the input from all advisors and determining the best path forward.
2ndG typically plays the investment banker, operational consultant or project leader roles in exit planning projects, but our affiliates at KraftCPAs also provide tax advice, valuation services and wealth management services. However, as we described above, the key for the business owner is to be able to augment the existing team of known and trusted advisors with other role players possessing relevant expertise. 2ndG and Kraft’s experts are happy to collaborate with advisors from many firms to bring the specific expertise needed for their clients, as well.