Business Advisory Services I-FAQs

Most entrepreneurs have engaged legal and financial advisors to create an estate plan and execute legal documents that support the plan. These plans typically address the personal wealth of the entrepreneur and his or her family. They often focus on death as the primary event – with strategies for minimizing taxes and maximizing wealth to heirs or charity. If an estate plan addresses the business, it is often limited to a life insurance policy placed in a trust, providing liquidity to heirs at the entrepreneur’s death.

Estate planning as a discipline does not address the essential preparation that can ensure your business continues past your leadership. It also does not address the interim work that can dramatically impact and increase the value of your business at the time of exit.

There’s a direct correlation between the preparation for exit and the net value to the entrepreneur at the time of exit. Optimum succession planning begins three to ten years prior to the actual transition.

If a buyer is considering several companies, they take a deep dive on whether the operating knowledge of the business has been transferred, or whether it remains in the black box of the entrepreneur’s intellect. Proven knowledge transfer directly impacts the value of the business in the buyer’s mind, and the entrepreneur’s negotiating clout at the deal table.

The transfer of operating knowledge is equally important with internal transitions to family members or key lieutenants. Effective planning can bely the statistic: only 30% of closely held companies survive to third generation.

For many the question remains: how do I start the conversation when I don’t even know what I want? Succession planning is the process of bringing your options into the light of day. Find a firm who begins early and goes deep to help you understand your own best path forward. Then, together you can use that clarity to identify and implement relevant initiatives.

Many entrepreneurs are exposed to a limited set of choices based on the advisors who have a seat at their planning table. It can be enlightening to learn the complete breadth of your options. These include: an internal transfer to key people, a transfer to family members, an ESOP (employee stock ownership plan) or a third-party sale. Oftentimes, a hybrid of these choices brings the most solid result relationally and financially for all parties.

In the past five years, there has been a significant increase in teaching organizations that offer methodologies and accreditations to advisors who wish to offer some form of business continuity services. Obtaining a designation can be a strong starting point, however it doesn’t mitigate the value of boots-on-the-ground experience that an advisor may bring to your planning table.

Importantly, exit planning treats your departure from the business as the beginning of the process. In reality, there are many crucial factors that lead up to the emotional readiness of the entrepreneur, and the ability to maximize the value at the time of exit. While the exit itself is an essential area of decision-making, it’s actually the mid-point of the process, not the launch pad for action.

Consider asking about the diversity of situations the firm has guided past clients through. Also ask about the firm’s longevity of offering services in this space. Ask them to provide their definition of exit planning, and to explain their step-by-step process. Dig deep to learn what the firm handles in-house, which areas of the journey they refer out, and which phases or disciplines they don’t address at all.

An educated buyer in this area should ask firms to explain what kind of work needs to be done prior to their piece, and what will need to be addressed afterwards. Also, ask them to disclose in writing how and when they get paid, and how their financial incentives correlate to their recommended course of action.