WHY WOULDN’T I SIMPLY USE ONE OF MY CURRENT ADVISORS TO LEAD THE DESIGN & EXECUTION OF MY EXIT PLAN?

After convincing a prospective client they need to begin today designing and implementing an exit plan, they might have the following response…

 “Ok, I get it…I need to start planning today…I agree.  But why do I need you?  You’re just one more added expense.  Why wouldn’t I just ask my CPA or Attorney, who I’ve known for 20 years to lead the process?  I’m going to need them in the process anyway…”.  Our response would go like this, “Well, that is true…you might not need us.  You can ask one of your current advisors…and they may be the right choice if they have comprehensive exit planning as a practice and area of focus.  But, consider this also -- are you going to most benefit from your CPA focusing mainly on the tax implications of your exit, or your Attorney focusing mainly on legal and risk management issues…or having them also manage all aspects of the planning process?”

I like to describe our role in Exit Planning with an analogy of someone who has a desire to build a large commercial building.  The newly impassioned real estate developer in the story has the necessary capital and a big vision, but has neither the experience nor the knowledge to construct the building.  In order to make the dream become reality, they will need subcontractors like architectural, electrical, and plumbing experts. All of these experts will need to be coordinated in order to design and implement the plan for construction, and, if the sub-contractors are not well-suited for the particular project, or if they are not effectively coordinated, the project can easily run long and over-budget.  This new real estate developer quickly realizes that a “general contractor” or “project manager” is absolutely necessary, one with knowledge and understanding about each specialty sub-contractor, or the big dream could end in disaster.

Demonstrating a level of intelligence and self-awareness, our new real estate developer wisely decides they are not personally equipped to handle the role of general contractor.  Instead of charging ahead and blindly trusting in their own lack of knowledge and experience, they pursue a long-time friend, the plumbing contractor, asking him to manage the entire project in addition to installing the plumbing.  The plumbing contractor explains that the project will go much better if he is able to focus completely on “what they do best” -- the plumbing.  The plumber also suggests that the developer hire an experienced general contractor to manage the project.  But the developer persists and the plumbing contractor reluctantly agrees to handle both roles – plumbing contractor and overall project management.

By making this decision, the developer is able to minimize professional fees on the front-end because he does not have to pay a general contractor separately.  However, by asking the plumbing contractor to perform a function they are not comfortable with, the project inevitably incurs additional numerous and painful expenses, including:

-       Significant increases in professional fees because the project lacks appropriate coordination and efficiency

-       Contractors hired who were not particularly suited for this specific project

-       Jobs not completed on time and coming in over-budget

-       Processes characterized by relational disharmony and conflict

-       The plumbing contractor is unable to give his full time and attention to the professional installation of the building’s plumbing system so he does not notice small mistakes and details that will eventually cause big problems

-      At some point in the process the developer begins to lose confidence in the plumbing contractor – in both the project management and in the plumbing functions – which has a negative impact on their long-standing business relationship. 

There is an unfortunate ending to our real estate developer story…

A few years after the completion of the project a massive plumbing problem results in enormous financial and reputation cost to the developer and hardship to tenants --- as well as to the plumbing contractor.  Needless to say, in the end the plumbing contractor is no longer the “long-time friend” of the developer.  The developer's goal of minimizing professional fees up front, ended up being tremendously more expensive in the long run.

A business owner’s exit story can end in similar fashion if the experts are not able to focus intently on their area of expertise, and well-coordinated with all other experts.  The difference being that instead of plumbing, electrical or architectural problems, the owner can end up with devastating tax, legal, or finance problems downstream. 

Begin planning today…and with the right experts in the right roles.  Please contact us today if we can serve you in this.

Patrick Ennis

Ennis Consulting & Conciliation, Montgomery Village, MD

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