Business exit strategy planning

Financial advisers who fail to help business owners plan for the liquidation of their companies are leaving a growth niche untapped.

The often-overlooked specialty of business exit strategy planning offers a big opportunity for advisers to build and protect their franchises.

Business owners are the overachievers of society and statistically the wealthiest people. They live a certain lifestyle that they can maintain only if they convert their illiquid business assets into liquid wealth.

Unfortunately, they know little about designing a strategy to attain that goal. Advisers, therefore, are in a unique position to become a resource, raising their “trusted adviser” status with clients and generating fees.

They might traditionally deal in liquid wealth, leaving the illiquid business concerns to other professionals. But they should bear in mind that with proper planning, business assets will eventually become liquid assets.

For aging baby boomers in particular, this decision is coming sooner rather than later.

According to a 2002 study from NFO WorldGroup of Wilton, Conn., the number of retiring business owners is expected to balloon to 750,000 a year by 2009, from 50,000 a year in 2001. This suggests that a massive wealth transfer has begun, in which proactive advisers can position themselves to participate.

Many of these business owners are already clients or prospects of advisers. But one fact is critical for advisers to understand. Clients prefer to work with several advisers during the accumulation phase of their lives.

Yet during the distribution, or exit, phase, most clients select just one trusted adviser with whom they will work to devise an income replacement strategy, one of many steps toward a successful business exit strategy. So this trusted relationship hinges on the ability of an adviser to help the client reach financial goals, or the adviser risks losing the business.

Why wait for a savvy competitor to lure a client away with a comprehensive set of exit strategy solutions? Take action by combing your list of clients for private-business owners.

Start the process with an open dialogue, but approach it with care. An owner’s business exit is a life event of paramount importance.

It shouldn’t be used as an immediate opportunity to sell other products. Developing a solid relationship and generating an open dialogue is the initial objective.

So start with the following three questions:

Have you thought about a business exit strategy?

The answer might be no, but this simple question will begin a process of reflection and discussion of concerns. It also positions the adviser as an exit strategy expert.

What would you like to accomplish with your business exit?

This is the wild card, an open-ended question to which the owner might respond enthusiastically or show hesitation. Either way, it helps focus the owner on the question: What do you want? Recognize that what that owner wants often mirrors the original motive for starting the business. It isn’t a job; it’s a lifestyle for the owner, and all family and friends involved. The adviser who appreciates this will gain “trusted adviser” status.

Would you be interested in customized exit strategy planning advice?

At this advanced point in the conversation, the answer is probably yes. This is where knowledge becomes your guide. For instance, you will need to understand the transfer options outside of selling the business, which can include a transfer to family members, employees, charity, co-owners, or a partial sale in which the owner maintains a role in the operation. You will also need to build a network of service providers that can execute the business exit. The more knowledge and resources an adviser can provide, the more valuable the advice.

Get educated; take your franchise to the next level. Every adviser must ask the question: Is it worthwhile to become educated about this practice area?

Consider that your livelihood depends on the value of advice that clients receive. Given the importance owners place on their businesses, exit strategy planning is possibly the most valuable advice an adviser can offer.

It distinguishes the adviser as a niche practitioner, positions the franchise’s products better and commands higher fees.

So the answer is yes. It is more than worthwhile to become educated about business exit strategy planning as a means to tap into an underappreciated opportunity for years to come.

John M. Leonetti is managing director of Pinnacle Equity Solutions Inc., a Boston firm that assists advisers in developing business owner exit strategies. He can be reached at [email protected].