Exit Planning For Small Business Owners (including You!)

Part 1: Identifying current status and timing the exit strategy

Thinking about the future is a natural component of our jobs as agents and advisors. From economic changes to life changes, it’s important that we help clients identify both events they can predict as well as those they can’t. However, it’s easy to get so caught up in planning for the retirement of others that we as business owners start neglecting our own. After all, we can’t work forever (nor would we want to even if we could!). That begs the questions: Are you prepared for your future? And are you prepared to take advantage of the market opportunity that exists?

Over the next few issues of Creative Edge, we’ll address a number of key steps in the process of acknowledging the need for and developing a business succession plan that you can use both personally and professionally. We’ll discuss the importance of strategic planning, ways to evaluate a business’ current status compared to where it needs to be, and how to create an exit plan while maintaining accountability for the owner. Keep in mind that Creative’s new deferred compensation plan makes this the perfect time to start putting the pieces of your personal retirement puzzle together.

As a small business owner, you probably have great reasons for taking the path you’ve chosen. Maybe you wanted to work for yourself, felt a sense of fulfillment in creating a business from the ground up, dreamed of giving back to others through your profession or had a monetary goal in mind. Your clients who’ve gone down this road are no different. But who, in the early stages of a venture, ever considers the end goal – the exit plan? We should and often mean to, but in reality, we push it off consistently. Furthermore, most of us try not to think about the risks of daily life and what would happen to our businesses in a worst-case scenario of our untimely death or disability.

In reality, according to the U.S. Census Bureau, 40% percent of business owners are 55 years of age or older. That translates to roughly $17 trillion of business revenues that must change hands in the next 15 to 20 years. (Broadly speaking, this represents $6-9 trillion of value.)Whether we like it or not, business succession planning is imperative. Yet, recognizing and acknowledging the need for an exit plan can be the most difficult part of a small business owner’s journey.


Okay, so what if you or your clients do realize the importance? Where do you go from here? First, you need to determine how much the business needs to be worth at the time of the owner’s exit. You’ll want to take into consideration everything from the owner’s family situation and current health to partnership agreements and intellectual property that may be involved. Then, you can identify any potential income gap between existing assets and the timing of the planned exit. But how do you determine the difference between the actual worth of a business and the perceived worth?

As business owners, we’ve put our blood, sweat and tears (and money!) into making our firms successful. But naturally, that makes it easy to hold an over-elevated opinion of them. Understanding this early on in the planning process is necessary to structure the business appropriately for growth. Take, for example, dental practice owners. Many of these businesses are nearly worthless at the time of sale because up-and-coming dentists invariably have large education debts, no assets and can’t raise capital to acquire an existing practice because they have a hard time borrowing money. Therefore, if you’re working with a client in this situation, it’s critical he or she recognize that retirement is subject to adequate preparation of a successor or successors. Without a hierarchy, any internal opportunities are limited and an external sale is the only option. Talk with your clients about specifics of the business, the peer group value, and whether or not a business valuation has been conducted. Reviews around employee performance and salary scales should also be considered when identifying the "stand-out" leaders of your firm.


Once you’ve moved beyond deferring, procrastinating or ignoring the questions we just discussed, it’s time to dive even deeper into the truths of business ownership. You must have the conversation about the value of life versus the value of money. The business lifecycle is fairly predictable. After startup, a business will experience years of growth as it capitalizes on opportunities presented. Eventually, the business will mature and its rate of growth slows. Without an infusion of new ideas, it can potentially decline in its value to you as well as its worth to a buyer. As owners, you and your clients want to protect yourselves from potential declines. In fact, you want to prepare and exit at the apex of valuation – a difficult task, but the chances are greatly increased by suitable preparations.

After planning, now comes the hard part: When is enough, enough? At what point is the owner willing to take the earnings and get out? At what point would you personally be willing to walk away from your business satisfied with your accomplishments (both qualitatively and quantitatively)? Just as you walk through retirement goals and objectives with any client, you need to get to the core of what all of the owner’s hard work is really for. After all, the wealth we’re accumulating isn’t worth much if we can’t use it to enrich our lives. Many people are really good at spending money, but few people are good at enjoying money. If at any point you see yourself having less fun, feeling stressed and burnt out, you owe it to your clients and yourself to face the hard truth. It’s time to consider a change – one with a focus on quality of life over quantity of wealth. Even if your business is on the up, make sure you have a continuity plan, have given thought to succession and lead by example to impact your clients likewise.

Business succession planning is a key to a very large door, but it’s often hidden from view and opens reluctantly. By taking the stance that this is a crucial element of any estate plan, you are helping your clients while helping yourself. The more interaction you can have with clients about the future of their firms, the more trust and respect you can build, which translates into bigger and better opportunities. If you as the agent can help the business grow, you’ll only benefit from having more assets and client net worth to manage.

FOR AGENT USE ONLY. NOT FOR USE WITH THE GENERAL PUBLIC. 12169 – 2012/1/27 This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.

Allen Duck COO, Northstar Financial Companies, Inc.

As the Chief Operations Officer of Northstar Financial Companies, Inc., Allen is responsible for overseeing the overall efficiency of the firm, its systems, infrastructure and philosophy. He also oversees the development of value-added business strategies while maintaining the highest possible level of service to clients. Prior to joining Northstar, he held executive, sales and marketing positions with a number of international firms and, most recently, served as CEO of US Operations for Cencorp, headquartered in Finland. Allen holds his Series 7 and 66 licenses, and is a Registered Representative of Cambridge Investment Research, Inc.

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