The wave of Baby Boomer retirements is beginning. I’ve been writing and speaking about exit planning nationally for the last ten years, (you can download my free eBook on the subject here), but the inevitability of the demographics is gaining momentum.
Today, Boomers in their late 60s are starting to sell the businesses they’ve built over the last 30 years or so. They are just the tip of the iceberg. Millions more are steadily approaching their career finish lines at a rate of hundreds every day.
Exit Planning is a new discipline, developed to meet a massive market need. Unfortunately, like any new service offering, there are a lot of people who use the term without fully understanding it, or in hopes that it will associate them with a growing field of professional practice.
Accountants say they do exit planning when they help clients structure their business and personal holdings to minimize the bite of the IRS.
Estate attorneys say they do exit planning when they protect assets and document transfers of inheritances.
Wealth managers say they do exit planning when they provide retirement projections and validate lifestyle assumptions.
Consultants say they do exit planning when they recommend ways to increase the value of the business, presumably maximizing the proceeds from a sale.
Business brokers say they do exit planning when they value and list a company for acquisition.
Insurance brokers say they do exit planning when they write policies to protect owners, their families and their companies against premature departures, or the absence of key employees.
Which of these professionals really do exit planning? There are two answers:
- All of them
- None of them
Exit planning is the process of developing a business owner’s strategy for what may be the biggest financial transaction of his or her life…the transfer of the business. That strategy may be a succession to the next generation of family. It could be a sale to employees. It may be a sale to another entrepreneur, or acquisition by a larger company. In some cases, it could require an orderly dissolution.
In every case, it involves tax, legal, financial, operational and risk management expertise. No one practitioner (including me) has all the knowledge required for every aspect of the plan. Exit planning, in the true sense of the word, is coordinating all those skills so that they work together for a single objective.
Let’s say, for example, you run a warehouse with delivery services. You decide to make it as efficient as possible.
- You tell the purchasing manager to only order product when pricing and inbound freight are the least expensive.
- You tell the warehouse manager to develop a system for picking orders with methods that require the least amount of labor.
- You tell the shipping department to pack up orders using the least possible amount of material.
- You tell the dispatcher to plan routes for times with the least traffic and the lowest fuel use.
- You tell the sales department to promise the customer anything that will close the sale.
Now, without letting any of these people talk to each other, you announce that tomorrow you are implementing all their results simultaneously. You go home dreaming about how amazingly profitable your business is about to become.
You don’t have to be a distribution expert to know what is going to happen. The uncoordinated plans are going to explode when combined. You’ve just come up with a great way to go out of business.
Now, what if you told one manager that your overall goal is to sell more product and give excellent service, so customers would become loyal buyers and the company will increase revenues and profits? Then you had the other managers report to him, so that all of their plans would compliment the overall objective.
That’s what an exit planner does.
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Property and casualty coverage falls into this category. You insure against damage or loss of equipment or the liability of an injury in the workplace. Workers’ Compensation is in the latter category, but you also need to think about visitors or customers in your business.
We pour millions of information bits into our systems. The databases have every transaction, every customer, every incoming shipment, and every due date. So why is it so hard to find out what our ancient homo sapiens brains tell us we need to know?
Finally, what would your customers, the loyal ones who do business primarily with you, think of this special pricing? Nothing stays secret forever. Are you risking currently profitable business in the chase for more? What will your salespeople think about giving out a better deal than their most dependable accounts get? Are you risking general price erosion?
Yet your most critical employee, your second in command, top salesperson, or an engineer in the middle of a large and complicated project, can just call one day and say they’ve gone to work for a competitor. The law says they have that right unless contractually prohibited.
John,
Thanks, I have a small chocolate wholesale/retail business. I started 6 years ago and after growing from 3 part time employees and lots of self employment expenses, remakes etc. I have been just me myself and I. I work almost 24/7 and multi-tasking is the name of my game. Now, I am thinking of relocating out of state and downsizing because I love what I do, but to consult with my accounting person about planning for a closing of this business and starting the same business in a different state that I will eventually retire in. I feel I have learned what to do and what not to do, so I have about 1-2years to schedule the move.
Thanks, always enjoy your posts..