An Introduction to Exit Planning (The first chapter from The $10 Trillion Opportunity, 2nd ed. by Richard E. Jackim)
Jim Unger sat across a table from me at the University Club in Chicago. His hand trembled slightly as he placed a wire transfer confirmation on the table in front of me. We just spent 12 months creating and implementing Jim's business exit plan. As a result of our months of hard work, Jim had just sold his business. The results of 20 years of Jim's efforts were on the table in front of us and he was pleased; $12 million had just hit his bank account.
Jim was smiling from ear to ear, but his eyes were brimming with tears. This had been a very emotional process for him. He admitted as we spoke that the process of exiting his business had been exhilarating and terrifying at the same time. When he said this he added he was extremely grateful for our help. The exit process we designed ensured that Jim and his family would be able to accomplish all their personal and financial goals.
We toasted Jim's success with a bottle of champagne he ordered for the occasion. As we were leaving that night, Jim gave me a big bear hug and told me a few business owners from his country club asked him how he had been so successful selling his
business. When Jim sheepishly asked if I'd be willing to talk them, I smiled. And that is how it started.
I'm Richard Jackim. As president of The Christman Group, I realized our success with Jim and other business owners like him pointed out a real and growing need in the business community. The day after my dinner with Jim, I sat down with my partner Peter Christman to let him know how happy Jim was with our results. Reflecting on the very different experiences of Jim Unger and some of our other business owners we knew, Peter and I felt there was a better way to provide investment banking services to middle market business owners. We began discussing how to change the way we did business so we could consistently deliver success stories for each of our clients.
We began by redefining The Christman Group, narrowing and refining our focus from that of a traditional, middle market investment banking firm to an investment bank specializing in developing and executing exit plans for private business owners. That slight change in positioning has been the secret of our success.
Our focus on exit planning is the reason we no longer have to make cold calls. It is the reason that clients and their advisors seek us out. It is the reason clients do not negotiate our fees. It is the reason why virtually all our clients are referrals from other professionals and former clients. The $10 Trillion Dollar Opportunity shows you how you can reposition your professional practice and enjoy the same level of success.
Our focus on exit planning allowed us to totally revise our value proposition and change how we sell our services. As a result, a huge number of opportunities opened up for us that were not available before, simply because we no longer "sell the old fashioned way." According to Peter Christman, co-founder and CEO of The Christman Group, "This slight change in positioning became an incredibly powerful marketing tool for us. Any time anyone asked me what I did, I told them we were exit planning specialists. That was sufficiently intriguing that people always wanted to learn more. That's when our consulting practice really took off."
The $10 Trillion Dollar Opportunity is designed specifically for lawyers, accountants, estate planners, financial advisors, wealth managers, real estate professionals, commercial bankers, and virtually any other professional who advises owners of privately held businesses.
It will show you how to help your clients achieve three key goals:
1. Commit to developing and implementing a good exit plan
2. Create a comprehensive exit plan custom-tailored to meet each business owner's individual needs
3. Successfully execute the plan
Why this Book Is the Most Important Business Development Tool You'll Use for the Next 20 Years
If someone offered you a simple formula that could bring clients to your door and send them away happy, help you dramatically grow your business and feel good about yourself at the end of each day, you might be a little skeptical. Well, that formula is in your hands right now. This book shows you how to tap into a new source of business opportunities that will let you grow your professional practice in dynamic and rewarding new ways. Within a few months you'll be bringing in new clients, larger clients, and better clients. You'll be generating more revenues than ever before. You'll rocket your career to new heights and experience more success than you may have imagined possible.
The $10 Trillion Dollar Opportunity takes you step by step through a process that enables you to gain instant credibility with business owners and other professional advisors. It teaches you how to differentiate yourself from every other professional with whom you compete. It will turn you into a client magnet that regularly attracts leads and prospects.
And the best part is that these new opportunities will become more and more plentiful over the next 20 years. Why? Because they're driven by the aging of the enormous Baby Boomer generation.
What Is an Exit Plan?
An exit plan is a comprehensive road map to successfully exit a privately held business. An exit plan asks and answers all the business, personal, financial, legal, and tax questions involved in selling a privately owned business. It includes contingencies for illness, burnout, divorce, and even the owner's death. Its purpose is to maximize the value of the business at the time of exit, minimize the amount of taxes paid, and ensure that the business owner is able to accomplish all his or her personal and financial goals in the process.
An exit plan can be complex and usually requires advice from a number of different specialties, but the failure to create a well-defined exit plan virtually guarantees that business owners will:
• Exit their companies as a result of pressure from outside circumstances, not as a result of their own desires
• Exit their companies on a timetable that's forced on them instead of one that meets their needs
• Undervalue their companies and leave hard-earned wealth on the table
• Pay too much in taxes
• Lose control over the process by being reactive and limiting their exit options
• Fail to realize all their business and personal goals
• Suffer unnecessary psychological stress
• Watching a lifetime of work disintegrate as a result of poor business continuity planning
• Lose confidentiality during the sale or exit process
On the other hand, a well-designed and implemented exit plan enables business owners to:
• Control how and when they exit
• Maximize company value in good times and bad
• Minimize, defer, or eliminate capital gains taxes
• Retain control by generating a number of strategic exit options
• Ensure they achieve all their business and personal goals
• Reduce their stress and that of their employees and families
• Ensure continuity of the business
A recent survey showed the number one reason private business sales fail or only partially succeed is a lack of planning on the seller's part. However, in spite of the importance of exit planning, most business owners spend more time planning a family vacation than when and how to exit their businesses.
Your Role in the $10 Trillion Opportunity
Within the next 20 years, more than 90 million people in the United States and Canada will be retiring. These are the "baby boomers," the generation born between 1946 and 1964.
Baby boomers' needs and wants dominate and drive the marketplace, and the marketplace has bent over backward to meet their desires. For example, as the boomers passed from birth through infancy, sales in the prepared baby food industry skyrocketed from 270 million jars per year to 1.5 billion jars.
As they enjoyed early childhood, the baby boomers were greeted with Frisbees®, Hula Hoops®, skateboards, and Tinker Toys®. Toy companies made billions by providing tens of thousands of brand-new playthings to educate and entertain the boomers.
As the boomers hit their teenage years, companies such as McDonald's®, Burger King®, and Kentucky Fried Chicken® earned billions as part of a brand-new industry specifically designed to cater to the first generation to spend a good deal of its social life in a car.
Community infrastructures were also defined by the boomers' needs. Architects, engineers, and builders saw their businesses jump as roads, housing developments, and schools were built at breakneck speed to accommodate this unprecedented growth. Social programs were implemented to cope with the huge numbers of new problems and opportunities created by this massive group, while the number of universities and vocational schools more than doubled to accommodate the enormous influx of students.
Baby boomers have been the most affluent and influential population group in the history of mankind, and now they're getting ready to retire. Economist and demographic expert Robert Avery at Cornell University predicts baby boomers will transfer 10 trillion dollars to later generations—the largest generational transfer of wealth in the history of humankind. The vast majority of this wealth is held as stock in more than 12 million privately owned businesses, and during the next 10–15 years, more than 70 percent of these companies are expected to change hands.
This unprecedented transfer of wealth presents a unique opportunity for you to add tremendous value to your clients' lives and take your practice to the next level. Baby boomers are charging toward retirement with the same unstoppable single-mindedness with which they've approached the rest of their lives, and if you want to ride this trend to greater success, you must have an understanding of exit planning and the important role that you can play in the process.
Why Exit Planning Is a Win-Win Solution
You are in a position to help your clients do more than simply exit from their business; you have the power to help them realize the American dream. You can help your clients redefine themselves in exciting and meaningful ways as they move into a retirement free from worries about money—and by helping your clients realize their dreams, you will be doing the same thing for yourself.
An advisor who is trained in exit planning and who approaches the exit-planning process in a client-centered holistic way can provide value-added services that will almost certainly have a dramatic and positive effect on his or her client's lives while simultaneously boosting the advisor's businesses—a true win-win outcome. Some of the benefits of successful exit planning to the professional advisor include:
• Building deeper and stronger relationships with existing clients
• Creating clear differentiation between a skilled exit-planning professional and the advisor who focuses merely on exercising his or her traditional skills
• Generating additional revenues for you as you provide value-added solutions to clients
• Identifying opportunities to provide new value-added services or products to your clients
• Building a collaborative network with other professionals that fosters mutual business referrals in an exit-planning environment
• Generating a high degree of personal self-actualization by expanding individual and professional skills
The Secret to Success Is Easing a Business Owner's Pain
In spite of overwhelming evidence that exit planning is a vital part of business ownership, most business owners don't create an exit plan. There are a number of reasons why they avoid it, ranging from the deeply psychological to the purely practical.
First, just as most of us don't like to talk about our own deaths, business owners don't want to talk about the end of their businesses. Even if the business goes on after they exit, they are losing a part of themselves that has provided extraordinary value and meaning to their lives. They're afraid to talk about the subject, just as some of us put off making out a will or buying life insurance. Dealing with these subjects somehow makes them more real, which means we have to acknowledge the pain they might cause. It's basic human nature to avoid the unpleasant, and no matter how smart or successful a business owner is, he or she will almost always avoid painful situations, even if they're necessary for future health.
Second, exit planning is time consuming. Most business owners are swamped with work on a day-to-day basis. Some spend 60 80 hours per week keeping things running, putting out fires, and trying to balance the demands of the business with family and social obligations. It's no wonder they don't feel they have time to create a comprehensive exit plan.
Third, exit planning is complex and very few resources exist to guide a business owner step by step through the process. Ignorance of the process combined with the knowledge it must be done sooner or later can create a lot of tension for a business owner. If a business owner lacks the means to attack the problem head-on, he or she will usually sidestep it as long as possible.
Finally, studies show that most business owners do not understand the tremendous return on investment exit planning can provide them. A lack of understanding prevents them from weighing the benefits of doing something versus the costs of doing nothing. As a result, they favor the status quo and do nothing.
The combination of an intense need for exit planning and an equally intense resistance to doing so creates a powerful and painful tension in your clients' minds. At first glance, these problems might suggest that any sensible advisor should run, not walk, away from any exit planning engagement. Why would anyone in his right mind want to tackle a task loaded with so much client resistance?
The important thing to remember is that whenever change is imminent and unavoidable, as it is for retiring baby boomers, the advisor who can help clients make that change smoothly and painlessly becomes invaluable.
In Chapter 4 we discuss each of these issues in more detail and provide you ways to help business owners resolve these problems.
As a skilled exit planner, you will have the power to relieve your clients' tension so you will not only provide enormous value to your clients but also move way beyond being a knowledgeable resource—you become a trusted and indispensable advisor.
What You'll Learn from This Book
The $10 Trillion Dollar Opportunity shows you how to help business owners articulate and crystallize their business, personal, and family/estate goals, which will become the foundation on which the rest of the exit plan is built.
• You'll learn how to build a team of advisors to help you prepare a detailed business appraisal to establish a baseline value for the business
• You'll learn methods for enhancing the value of the client's business prior to an exit
• You'll learn the pros and cons of various exit alternatives, such as a third-party sale, ESOP, management buyout, family succession, refinancing, or liquidation
• You'll become familiar with ways to identify sound strategies for minimizing taxes related to the exit, including capital gains, ordinary income, and estate taxes
• You'll understand how important it is for clients to develop a wealth management plan before the liquidity event rather than afterward so the exit accomplishes their personal and financial goals
• Finally, you'll learn how to create an action plan that spells out the specific steps owners and their advisory team must take to prepare for an exit
This book contains real-world examples of the different steps involved in creating and implementing a successful exit plan and the benefits they provided to the business owner. We also point out each step's importance to you as a professional advisor and how each contributes to your success.
As you will see, a variety of skill sets is necessary to design a comprehensive and integrated exit plan. Because no single professional advisor has all the expertise required, exit planning is a multidisciplinary endeavor. The best exit plans are developed by a team that includes:
• A business attorney with mergers and acquisitions experience
• A financial advisor or wealth-management professional who does planning work
• A tax specialist well-versed in the latest personal and business tax issues
• An insurance professional
• An investment banking firm that specializes in exit planning
Depending on each individual business owner's circumstances, additional professionals might also be involved, such as a real estate broker, a family psychologist, or a business consultant.
In addition to covering the details of an exit plan, The $10 Trillion Dollar Opportunity shows you how to assemble the right team of professionals to help your clients, how to quarterback the team, and how to make these professionals become your biggest source of new clients.
Finally, we show you how to keep the exit planning and execution process on track and how to ensure that all the different players are working together to produce the best possible outcome for you and your clients.
Let's get started.
[Author's note: If you would like to learn more about exit planning, I encourage you to purchase my book, The $10 Trillion Opportunity: Designing Successful Exit Strategies for Middle Market Business Owners", 2nd edition, published by the Exit Planning Institute.]
