Despite being crucial for business owners, exit planning can often be misunderstood. As with all things, when broken down into its basics, the shroud lifts, and exit planning becomes less daunting and more digestible. These basics, including the who, what, when, where, why, and how, paint a straightforward picture of exit planning. Here, we will break down what exit planning is and why it’s crucial for business owners.
To start, let’s explain what exit planning is. Exit planning is a strategic process that makes the business more attractive through growing value and eventually preparing for the business to transition. This transition could be a sale, generational inheritance, or other exit strategies. It is critical to note that exit planning is not just creating value at the point of sale. It is not just about taking a static report and working solely from that.
As Exit Planning Institute® (EPI) CEO Christopher Snider says in Walking to Destiny, “Exit planning is dynamic and present tense. Integrating exit planning principles into the way you run your business today will improve your business performance in real-time. It’s what you do every day in your business and personal life that determines a successful outcome.”
Exit planning calls on the business owner and their advisory team to align business, personal, and financial goals, called the Three Legs of the Stool™ approach, to properly prepare for this process. Exit planning sets out to accomplish three goals:
Those three legs must be aligned. To simplify it even further, here is Christopher’s definition of exit planning as described in Walking to Destiny:
“Exit planning combines the plan, concept, effort, and process into a clear, simple strategy to build a business that is transferable through strong Human, Structural, Customer, and Social Capital. The future of you, your family, and your business is addressed by focusing on creating value today.”
Who are the key players in the exit planning process? The most straightforward answer may be the business owner, who is truly the center in which the other parties orbit. A business owner is the one who approaches the idea of exit first, wherein they realize exit planning is needed. From there, they will approach their advisory team, which often includes financial advisors, lawyers, and family members. Key to this team in the exit planning process is the Certified Exit Planning Advisor (CEPA®). The CEPA is the trained individual committed to taking the business owner through the Value Acceleration Methodology™ and achieving the desired exit.
The CEPA, who can be likened to the “quarterback” of the exit planning team, is the one who can conduct the independent personal, financial, and business assessment correlated to the business range of value known as the Triggering Event, with the owner. This includes overseeing de-risking and growth projects, supporting the business owner, and ensuring the business owner’s needs are met to align those Three Legs of the Stool.
Advisors can find a valuable asset in becoming a credentialed CEPA. Not only are you bolstering your knowledge of an essential part of business ownership and financial planning, but you are also demonstrating to your clients that you possess a skill that will set you apart in the space. If you are a financial advisor, lawyer, consultant, or any other profession working closely with business owners and are interested in the CEPA credential, check out our CEPA brochure for more information.
Despite the word “exit” being a part of “exit planning,” it does not mean that everything is happening at the point of exit. As mentioned by Christopher earlier in this blog, exit planning is value creation, and that value creation begins today. Value Acceleration emphasizes the reality that exit planning is now and that the timing of the exit is irrelevant in the sense that the business owner can exit or grow the business now or in the future. The value they create and grow through the Methodology allows that exit to be possible.
Exit planning can only begin when the owner is ready to create value—including an investment in their 4 intangible capitals, which were listed above as the Human, Structural, Customer, and Social capitals. How each of these intangible capitals fare in the company can present a robust look at the created value.
After years of hard work growing the business to achieve their goals, business owners deserve the exit they want when the time comes. According to statistics cited in Walking to Destiny, three out of four business owners “profoundly regretted” the decision 12 months after selling. That statistic is why exit strategy and the Value Acceleration Methodology are so crucial. In working with the CEPA and their team, the business owner can pave a clearer path toward their desired exit without feeling like they are not a part of the conversation or, worse, forced out.
With all of this discussion of the importance of the Value Acceleration Methodology, let’s take a brief overview of what it is. The Value Acceleration Methodology follows a path containing three different gates—Discover, Prepare, and Decide—which allow the owner to align their Three Legs of the Stool. Working with the CEPA and their team, the business goes through each gate until they finally decide to either grow or exit the business.
The Discover gate begins with the Triggering Event, wherein that initial business assessment is completed. After those assessments are completed, the owner and the team create the prioritized action plans, which will be executed in the Prepare gate. The Prepare gate also contains de-risking processes and 90-day sprints to prioritize, execute, measure, reconnect, and recalibrate as needed. From there, the team prepares the Master Plan, which will then be executed in the Decide gate. The Decide gate is, as described—the time in which the owner and team decide to either continue creating value and growing the business or exit through their desired path.