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Value Creation Blog

5 Things Your Clients Need to Know for Exit Planning

Posted by Josh Patrick

If you are an advisor and work with business owners and have Clients who are over fifty yearsBusiness Exit Planning old, they are thinking about how they will leave their business.  When asked about their time frame for an exit, they will usually say they want to leave their business in five years.  If you come back and ask them three years later, they will still say five years.

I call this phenomena “perma-five”.  Business owners live in perma-five because they know there are things they need to deal with in their business but haven’t come up with a strategy or an understanding of what those things are.

I find there are five areas that business owners need to focus on if they ever want to change their relationship to their business and leave perma-five.  These areas are:

Understanding what they need financially.

Business owners can’t often sell their business and ride off into the sunset.  Once a business is sold, the ending capital will provide less than 20% of the income the owner had before they sold their business.  A financial plan showing this change in income is crucial in the planning process.

Knowing what the business is worth

In many instances the owner of the business will think the business is worth three to five times it’s real value.  If we help our owner Clients understand how buyers value businesses we can help them understand the importance of owning the real estate they operate their business in and why maximizing their qualified plan contributions is important.

Understanding the value drivers of their business

Most business owners are stuck in the tactical details of their company.  Helping them more to operational irrelevance in their business will allow them to start acting strategically in their business.  Certain strategic actions can add a tremendous amount of value and cash flow to the business.  Helping owners understand what those strategic actions are is very important.

Know who the business will be transferred to

In most instances an internal buyout or a move to a passive ownership strategy is the most advantageous for our private business Clients.  Understanding how both of these strategies works can provide real value for our Clients.

Keeping their key people

The concept of working with a “stay bonus” is important for having key people stay with our Client’s company.  Whether there is a third party sale or a passive ownership strategy pursued, having key people in place is crucial if one is to have a successful transfer strategy.

Helping our Clients move from “perma-five” to a real strategy for building value that allows them to change their relationship to their business is a key in working with private business owners in a wealth management relationship.  Having an understanding of the five topics above can go a long ways towards becoming the most trusted advisor for our business owner Clients.

If you are interested in learning more about the saleability of your company click on the button below.  You'll be able to schedule a complementary conversation with us where we'll take you through our Exit Planning Assessment.  Click on the button below to learn more about this process.


Securities and Investment Advisory Services offered through NFP Securities, Inc. (NFPSI), Member FINRA/SIPC. Stage 2 Planning Partners and NFPSI are not affiliated.

This article is published for residents of the United States only.  Registered Representatives and Investment Adviser Representatives of NFP Securities, Inc. may only conduct business with residents of the states and jurisdictions in which they are properly registered.  Therefore, a response to a request for information may be delayed.  Not all of the products and services referenced on this site are available in every state and through every representative or advisor listed.

Topics: business relationship management, business exit planning, for advisors, Exit planning for advisors

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