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by Partner Contributed Article on November 25, 2024
As we head into the last few weeks of the year, it’s likely that discussions are centred around how to close out remaining 2024 items, how to best prepare for 2025, or both.
It’s no secret that the landscape of exit planning continues to evolve, with the challenges and opportunities - for owners and advisors - getting larger and broader.
Advisors working in this space saw the crucial findings of the 2023 EPI State of Owner Readiness report come to fruition, with a major shift in owners not only seeking successful exits, but significant ones.
We’ve put together a list of some of the key learnings in exit planning that have emerged this year with the aim of shaping your advisor strategy for 2025 and beyond.
7 Lessons Learned in 2024
1. The Importance of Early Planning
One of the most significant takeaways from 2024 is the crucial importance of early planning. Business owners who start their exit planning process well in advance are better positioned to maximize the value of their business and ensure a smooth transition.
Encouraging early planning allows for the identification and mitigation of potential risks, the implementation of value enhancement strategies, and the alignment of personal and business goals.
2. Navigating Regulatory Changes
The regulatory environment continues to be a major factor influencing exit planning and general advisory services across the globe. In Australia for example, the rigorous regulation in the Financial Planning and Investment Advice industry has led to a decline in the number of financial advisors, resulting in higher advisory fees and a widening advice gap.
Advisors must stay informed about any regulatory changes and adapt their proposed strategies accordingly to keep up a competitive edge, and to help their owners remain compliant.
3. Leveraging Technology
Technology has become an indispensable tool in exit planning. Platforms like Capitaliz have revolutionized the process by digitizing the 21-Step Business Succession and Exit Planning process. These tools provide advisors with valuable insights, streamline administrative tasks, and enhance overall efficiency of planning.
The Capitaliz Dynamic Revaluation™ feature, for instance, has been a significant advancement for advisors working with clients to provide real-time tracking of growth and progress.
4. The Role of Professional Advisors
The role that a professional advisor plays in the exit planning process remains a cornerstone of a successful business exit for the owner. Certified Exit Planning Advisors (CEPAs) bring a wealth of knowledge and expertise to the table, helping business owners navigate the complexities of the process.
EPI’s CEPA credential is widely endorsed and has seen a growing number of professionals joining the network. The knowledge of these advisors plays a crucial role in guiding owners through value acceleration methodologies and ensuring that all aspects of the exit plan are thoroughly addressed.
5. Focus on Value Acceleration
Value acceleration continues to be a key focus area in exit planning.
The Value Acceleration Methodology, created by the Exit Planning Institute, emphasizes the importance of building a more valuable company ahead of the exit or transition.
This approach not only enhances the business’s marketability but also aligns with the owner's personal and financial goals. By helping owners focus on value creation, you can ensure your clients achieve a more favorable exit outcome.
6. Adapting to Market Dynamics
The market dynamics in 2024 have underscored the need for flexibility and adaptability in exit planning. Business owners must understand that strategies may need to change in response to changing market conditions.
Advisors who stay up to date are more prepared to help them pivot the various aspects of their plan, keeping it on track despite any necessary changes. Advisors should stay in tune to industry trends, economic shifts and emerging opportunities by subscribing to newsletters and reputable news sources, participating in online forums and communities, seeking continuing education through courses or conferences, conducting research, gathering feedback from their clients, and the like.
The ability to adapt quickly can make a significant difference to the success - and the significance - of an exit plan.
7. The Human Element
Finally, the human element remains a critical aspect of exit planning, especially with the emergence of AI technology. Regardless of timing or exit path, owners must consider the impact of their exit on employees, customers, and other stakeholders. Effective communication, transparency, and empathy are essential in managing these relationships and ensuring a positive transition.
In whatever level of involvement an advisor may have in the exit planning process, it’s important that owners have an advisor team in place that will enable a system of checks and balances for the more “human” elements to be considered.
5 Common Pitfalls to Help Owners Avoid
We’ve discussed before the common challenges that advisors have in integrating exit planning to their practice from the need for a defined process or automation program or to the inability to collaborate or specialize.
While exit planning offers numerous benefits to the business owner, advisors are often faced with hesitations or roadblocks in early planning conversations due to common pitfalls that owners fall into:
- Flawed Assumptions: Making assumptions without a solid foundation or industry context can lead to unrealistic estimates and misguided valuation models. It’s crucial for advisors to be sure that owners' assumptions are based on accurate data and industry benchmarks, or it could derail a plan before it even gets started.
- Biased Forecasts: Allowing personal or organizational biases to influence projections can result in a distorted view of the business’s value. Helping owners to implement measures to mitigate biases and ensure an objective assessment is essential for a realistic valuation.
- Inadequate Due Diligence: Thorough due diligence is vital to the valuation process. Helping to ensure the accuracy and completeness of data, and offering expert advice to scrutinize assumptions can help build a robust foundation for exit planning.
- Overlooking Non-Financial Factors: All too often, owners focus solely on financial metrics. Ignoring the non-financial factors can undermine the value of the business tremendously. Advisors should assist owners in assessing areas of business such as customer relationships, employee satisfaction, and operational efficiency, to allow for a more comprehensive evaluation.
- Lack of Flexibility: Rigid exit plans that do not account for changing market conditions or unforeseen circumstances can hinder the success of the exit. Advisors should remind owners to remain flexible and be prepared to help adjust their strategies as needed.
Register for an upcoming webinar with Capitaliz President, Jared Johnson, and the team for a comprehensive overview of the most asked advisor questions – plus the insights and solutions available to conquer your challenges in 2025.
Conclusion
So, what does all this mean for your advisory strategy?
Just as you tell your business owner clients, planning is not a race - it’s a process.
By incorporating these key learnings, advisors can help owners navigate the complexities of exit planning with greater confidence. Further, by approaching conversations with the common pitfalls in mind, you can be sure you are helping your clients take the necessary measures to mitigate them and enhance the overall effectiveness of their exit strategy.
As we move forward, staying informed and proactive will be essential in maximizing business value and promoting successful and significant business exits for your clients.
For more content curated for CEPAs and the Exit Planning Institute network of advisors, check out our resource hub packed full of podcasts, training, articles and more!
