How Can A Cash Balance Plan Help With My Exit Goals?

If your goal is to exit your business at some point in the next ten years, you should answer these questions as soon as possible:

• When in the next 10 years do I want to leave or exit?

• How much $$$$ will I need (net of taxes) to do everything I want to do after the business?

• To whom do I want to sell the business…third-party, insiders, children/family, ESOP?

• Is my business sellable? For how much?

• What is my plan for life after the business? (Most owners are miserable within two years of exit because they didn’t have a post-exit life plan).

You may decide to head down one of the following paths once you thoroughly answer these questions and others like them:

• Over the next ten years you decide to work hard to maximize the sellable value of your business (having a goal of selling for top dollar in the next 10 years), while at the same time accumulate as much $$$$ outside of the business as possible — in order to maximize your exit route options.

• After learning that you would need to invest much more time and money for your company to be sellable, and decide that you don’t have the energy for that, you might also decide that simply “closing the doors” and liquidating for asset value in 5 years will be your exit strategy — but in the meantime you will , “sock away” as much $$$$ as you can in savings and investments outside of the business.

• Maybe you have a professional practice (i.e, Attorney, Dentist, M.D., etc.) with neither a clear successor option or potential buyer, and you definitely want to exit within the next 5 years.

In all of these scenarios and others like them, where the owner wants to maximize savings outside of the business, a Cash Balance Retirement Plan could be an effective tool, if certain parameters are met, in accomplishing that objective.

A Cash Balance Plan is an IRS Qualified Retirement Plan that affords participants the ability to accumulate money for retirement in amounts well beyond the 401k and Profit Sharing contributions. If your comprehensive plan for exit includes maximum asset accumulation outside of the business, you should consider the pros and cons of a Cash Balance Plan and how it might serve in accomplishing your goals. If you need help contact us. You can also access further information by listening to Episode 29 of our ExitReadiness® PODCAST with guests Financial Advisor Erik Fromm and Retirement Specialist Les Risell of Janney Montgomery Scott.

Invest 15 minutes and take our exit readiness questionnaire. We do not ask for confidential information and you will receive a 12-page report scoring you in four key planning areas.

"I Don't Even Know Where The Life Insurance Policy Is!"

The spouse of a small business owner confided to my wife, “I don’t know what I’d do if something happened to my (business owner) husband.  I don’t even know where the life insurance policy is.”  That business owner has no business plan, and more importantly, no written exit plan - and his spouse knows it.

Sadly, this situation is all too common.  Most of us avoid thinking about the possibility of disability or even death.  The “tyranny of the urgent” – customer calls, product problems, financial pressures or a thousand other things – can crowd out genuine intentions for long term planning.  When the unexpected happens, as it all too often does, everyone suffers if proper safeguards are not in place.

Effective business planning allows for the unexpected.  It details how the business is organized, what and where the documentation is, and who should fill the owner’s position if he or she is unable to continue, even temporarily.  Exit planning goes several steps further.  Effective exit planning outlines how and when the business ownership will be transferred, or sold, to someone else.  It provides for appropriate business, tax, legal, financial, and estate planning.  Effective planning means everyone involved with the business knows what will happen next.

The experience of one client emphasizes why planning is critical.  (Names have been changed for privacy).  Tom, the owner, had built a successful multi-million-dollar business.  Lenore, his wife, had long expected that she would take over running the business if anything ever happened to Tom.  It was suggested that Lenore do a trial run.  She agreed to work full time, assisting Tom, for six months.  It wasn’t long before Lenore realized that not only did she not want to work at the business, she did not want to run it – ever! 

That was valuable information for Tom and Lenore.  They knew then that the Owner’s exit plan would not be for his spouse to ultimately own and run the business.

Not long after, Tom was unexpectedly hospitalized with a critical medical condition.  Because of his foresight and effective planning, Lenore only had to be concerned about her husband’s health.  The contingencies they had carefully planned for were covered.  Lenore did not find herself trying to run a business while caring for her husband at the same time.  Their financial needs were covered, and their children, employees, and customers were protected.

A Business Enterprise Institute survey revealed that only 38 percent of business owners think they have identified all the steps necessary to exit their business, and only eight percent had put those plans in writing.

Some questions every business owner should ask are, Would my spouse know what to do next if something happened to me tomorrow?  Do they know where the important documents are?  Would my family be financially protected?  Would my customers and employees be properly cared for? Would my business continue uninterrupted? Would I want it to and would my family need it to?

The demands on any business owner can be overwhelming, but putting off effective long-term planning can be disastrous.  Take steps now to cover tomorrow’s challenges.  The time will come when you will be glad you did.

Contact us today for an exploratory conversation about our STRATEGY RENOVATION® Exit Advisor engagement. Contact information: 301-859-0860 | email@ennislp.com.         

The Emotional Aspects of Your Eventual Business Exit

“The emotional aspect of an exit and transition is what’s hardest (paraphrased)”. This was a statement made by one client to another at a recent charity golf event. While listening to the conversation I was freshly reminded about what’s at stake when and how an owner leaves their business, that perhaps took them decades to build.

The client making the statements described in some detail how the “emotional piece” resulted in inertia and procrastination around creating a plan for his eventual exit. He knew he needed to put a strategy in place, but was simply having a difficult time facing tough transitional realities. Emotional realities included his brother (partner) who helped him build the business transitioning out now, and in a few years exiting the business completely himself while transferring ownership to his two children. That was a lot of “emotional stuff to work through” and he was having a hard time getting his mind around it all. What they learned during our planning process was that the practical or technical elements of their exit plan were “the easy part” compared to the emotional challenges of leaving a business that had become “a big part of who they were.”

He went on to say how essential our ongoing conversations were that clarified his dreams and desires while helping to navigate the emotional “roller coaster”. Having an objective third party to help him and his brother think through all aspects of the different transitions and conduct the “emotional conversations” was essential for their respective goals for exit to be accomplished. For quite some time they had talked about doing something but it wasn’t until they engaged in third-party coaching and assistance that they were able to move the ball down the field toward the goal line.

The moral of the story is to expect that there will be significant emotional considerations that can be the source of inertia in creating a plan for one of the most significant and impactful events of your life. You will be wise in getting the skilled planning assistance required to help you move forward emotionally and practically in accomplishing your exit dreams and goals.

For assistance, you can reach us at email@ennislp.com or 301-859-0860.

Will You Be As Responsible Exiting Your Business As You Have Been Building It?

One of our clients had built a thriving service business over 20 plus years and was able to exit successfully a couple of years ago.  When we first met to discuss his desire to exit about 5 years ago, we discussed his time frame and financial needs, but also his outside interests such as his basketball outreach to a local underprivileged neighborhood.  Many years ago, very discreetly, he began renting a gym weekly for teenage and college-aged kids in a low-income neighborhood and faithfully ran it at his own expense for years.  He lived life "others-focused" in both his personal and business life and we find that to be true for most successful owners.

Like other successful business owners, our client worked hard for decades withstanding downturns in the economy and persevering through other tough times while managing to build a profitable business.  A business that many people had come to depend on including employees, customers, vendors, suppliers, his family, as well as charities he supported. He had been deeply committed to his responsibility as a business owner, and now realizing all that was at stake, he wanted to be as responsible in how he left the business as he had been in building the business. And, he understood that it would require time and planning if he were to experience the same level of success.

Will you be as responsible in planning your exit as you have been in building the business?  In our client’s case, the business has been sold to insiders and has realized continued prosperity serving all stakeholders, while our client is flourishing in his well-planned and meaningful “life after the business”.

Plan now so that you are as responsible and successful exiting your business as you've been in building it. You can get started today with our free exit assessment. We do not request any confidential information, it requires 15 minutes of your time, and you will receive a 12-page report scoring you in four key planning areas.

email@ennislp.com | 301-859-0860

What's an "Earnout"?

The term “earnout” is often mentioned by an advisor or business owner when describing the terms of a business sale. If an owner has as part of their deal an earn-out, they have been asked by the buyer of their business to stay on for a specified period of time in a senior leadership role within your acquirer’s company. In this role, they will be charged with achieving a set of goals in the future (i.e., revenue or profitability goals) in return for additional compensation for their business. This approach is used when the successful operation of the business being bought is dependent on its owner, and/or the buyer needs to bridge the gap between what they are willing to pay for the business and the amount of money the owner wants for the business.

Earnout terms average somewhere between two and three years in length and are very common in service businesses. The assigned earn-out goals are often linked to revenue and profit, the retention of specific accounts or customers, or any other metric that the buyer considers important and the seller is willing to agree to.

Earnouts at times can work extremely well for both parties. At the same time, all too often it doesn’t work out with the selling owner leaving prior to receiving their earnout. A common reason for an owner leaving early would be the fact that they are now an employee of the company they have invested years in building, and that can be a very difficult adjustment.

We talk a lot about planning to exit “on your own terms and conditions”. Leaving on your own terms and conditions might look like not being forced into an earnout when you sell. If you begin planning your exit well in advance, you can think through what roles you would be willing to play when you leave (i.e, lender, employee, shareholder), and which roles you wouldn’t be willing to play. For example, if there is just no way in the world you’d ever want to be an employee of the business you’ve built from the ground up, at the time of sale you will need a business which does not depend on you — and building a business like that can require a lot of time.

Take our FREE ExitMap® Assessment and get a 12-page report scoring you in four key planning areas: Finance, Planning, Profit/Revenue, Operations. It will take about 15 minutes and we do not ask for confidential information.

ennislp.com | email@ennislp.com | 301-859-0860

“Thanksgiving” and A Successful Exit

“I’m grateful that we’re finishing the year strong!”

“I’m thankful we’re going to make it through another year”

“I’m grateful for our team!”

One of the key reasons we enjoy working with business owners is that we generally find them to be charitable, others focused, and grateful.  Sure, like the rest of us, they certainly have their days of complaining about things like lack of sales or “people problems”, but overall, our experience has been a mindfulness of all they’ve been “blessed with” and can be grateful for.

We regularly hear expressions of gratitude for…

·      “Our customers”

·      “Our sales”

·      “We made it through the crisis!”

·      “Our employees – the people who have helped me build this business”

·      “We’ve seen tremendous growth!”

·      “Success beyond my expectations and what it means for my family”

·      “We are still in business after all these years!”

·      “For our reputation and role in the community”

 As Exit Planners, it’s important to listen to what Owners are thankful for, because at the same time we learn what they most value and care about.  Understanding an Owner’s “personal core values” is key to effective planning for their eventual (and inevitable) business exit.  For example, if care for employees and their future is a PRIMARY goal in an Owner’s exit, a sale to a third party may not be the best route for their exit.  The owner-based goals, values-based (what they are most grateful for and care about) and financial, should have impact on what exit route they choose.

You can make much progress in deciding how and when to exit when you gain clarity in what you most value.  And there is no better time than the week of “Thanksgiving” to consider what you are most grateful for pertaining to your business. 

A suggested exercise is to ask yourself (and your spouse if applicable) the following simple question during this week of thanksgiving: “As a business owner, who, and what, am I most grateful for?”  And record your thoughts and responses. Then when your Exit Planner presents questions pertaining to your core values and values-based goals, with a goal of helping you decide on the best exit route to accomplish your goals, you will have clear answers with conviction.

 Happy Thanksgiving!

Invest 12-15 minutes in the FREE ExitMap® Assessment and get a 12-page report scoring you in four key exit planning areas: Finance, Planning, Revenue/Profit, and Operations.

"I want to sell my business in 1-2 years..."

Many baby boomer business owners are thinking they "are ready" to leave their business in next 1-2 years and begin their retirement or third act in life.  With the economy growing and the number of investors seeking quality businesses to buy, many are thinking it could be an opportunity to "sell high" and accomplish their financial goals.

If indeed there is a desire is to sell within 2 years, and minimal or no exit planning and pre-sale due diligence has been achieved to this point, following are a number of the key planning issues that should be addressed in the first 60 days:

• Establish owner-based exit goals (desired buyer, sale-price, values-based goals, etc.) and do whatever possible to prepare for life after the sale. Survey data indicates most business owners are not happy in life two years after the sale of their business.

• Select a transaction intermediary (Investment Banker or Business Broker).

• Get an estimate of business marketability and value.

• Begin tax planning and pre-sale due diligence.

• Assess and, if possible, enhance business value drivers.

• Take steps to protect the value of the business during transfer (i.e., employee incentive plans/stay bonus).

• Select the remaining needed members of your Deal Team (i.e., CPA, M&A Attorney).

• Review your estate plan and business continuity arrangements.

• Make decisions pertaining to a plan for communicating your plans to employees.

This is not an exhaustive list and only represents what should happen in the first 60 days.  There is much more to do throughout the 2-year period to give yourself the best chance at a successful exit.  So, an immediate priority should be the selection of a trained and experienced Exit Planner to assist with the management of the exit planning project.  Typically someone is going to engage a knowledgeable project manager or general contractor to manage the process for building their "dream house".  In selling a business, there is much more at stake than building a dream house.

Invest 12-15 minutes in the FREE ExitMap® Assessment and get a 12-page report scoring you in four key exit planning areas: Finance, Planning, Revenue/Profit, and Operations.

Exit Planning and Marathon Runners

“Eat well and exercise!”

Just about everyone over 30 has heard this advice from someone interested in our health, usually a doctor.  We all know that we should begin by doing SOMETHING, yet we wind up not really doing anything.  We know deep inside that if we want to live long and prosper, taking a few painful steps will have long-term pay-offs, but all too often those first few steps never happen.

What has this got to do with Exit planning? 

Business owners know they should be taking steps to plan for the future, but all too often they don’t seem to get around to it.  With each passing year comes the thought, “I’ll get to that.” But, like the good intentions for diet and exercise, the longer one waits, the harder it gets.

How Exit Planners Help Businesses Get In Shape

            Exit planners are a bit like personal trainers.  What personal trainers do for fitness, exit planners do for businesses. They take a look at the shape a business is currently in, and develop plans to improve that business until it is in optimal condition, usually so that the business can be transferred or sold in such a way that the owner remains in control of the sale.  A business in less than optimal condition often means that the owner will lose some of control of the sale to the whims of the buyer.

Dream Big

            A middle-aged person who develops a dream to run a marathon soon finds that just reading about marathons is not enough to get in the race. Still, if they never dream the marathon dream the race has no chance of being run at all.

            Business owners who intend to sell also should not hesitate to dream big, even if they do not plan to sell for five or ten years. Big dreams mean big accomplishments.  Every business owner should dream big about two things:

1. The ultimate objectives (financial, personal, family, and/or philanthropic goals) for leaving the business.

2.  The “transferable value,” of that business, which should ensure that the owner does not have to go with the business when it is sold.

Set Small, Achievable Goals

            Like someday wanting to run a marathon, dreams are easy to write down, but need diligent daily work to achieve.  They will not happen on their own. Whether you a baby boomer nearing retirement, in the middle of your career enjoying the excitement, or just at the very start of a venture, taking these simple steps will prepare you for the future:

1.         Get help to develop a “workout plan.” Just as it can be helpful to get a personal trainer involved when you begin to exercise, the same is true for business planning.  It's a complex process that requires specific knowledge in certain areas (legal, financial, estate planning, human resources, etc.) to ensure your business gets in optimum shape.  

2.         Set simple goals - Simple goals when one begins exercising help to prevent accidental injury, and the same is true for exit planning.  Three simple, easily achievable goals are:

a.     Determine how much money you need, or want, for retirement

b.     Decide when you want to leave your business

c.     Identify the person, or persons, to whom you want to transfer the business

3.         Start slowly – you can't rush getting into great physical conditioning, and you can’t rush the business planning process. Set realistic goals and act on them one by one.

4.         Stay steady and consistent - sticking with the plan and taking small, consistent steps will pay off.  Make time in your busy schedule to do the essential steps.  

5.         Measure progress - in order to ensure you're making progress toward your goal you’ve got to measure it. Setting 90-day goals allows manageable progress and the ability to celebrate the small wins.  

As you work hard in the business day-to-day, take the necessary time to prepare for tomorrow - starting your exit planning program now will maximize your quality of life in the future.

Get started today with our FREE Exit Readiness Assessment.

Wealth Management for Small Business Owners

Small business owners are at times neglected by the wealth management community as the business is commonly (not always) the owner’s largest asset rather than a portfolio of stocks, bonds, and mutual funds. You’d be well-advised as a business owner to engage a Financial Advisor who is proactive and experienced in factoring your future plans for the business into your overall plan for managing your wealth.

Impactful wealth management for you as a business owner would include at least these elements of exit planning:

• Clarifying what “exit” means to you. For example, do you want to leave entirely at some point, or gradually over time?

• Clarifying your financial, values-based, legacy goals, and what role the business needs to play in attaining your goals.

• A financial needs and gap analysis with an accurate valuation (not back of the envelope - meaningful planning requires accurate data) of the business. How much $$$$ will you need to do everything you want to do after the business? Is there a financial gap? Will that gap need to be closed by increasing the value of the business?

• Personal risk management including asset protection, insurance planning, tax planning.

• A current estate plan — a business owner cannot do exit planning without doing estate planning.

• A plan to preserve the value of the business (typically a small business owner’s largest asset), and a plan for it to survive during unexpected events of your permanent disability or death.

• An appropriate plan for managing financial assets resulting from the successful sale or transfer of your business.

Exit planning is wealth management for business owners that requires assessing, preserving, and building the value of your largest and most complex asset…your business.

Contact us at email@ennislp.com for assistance in building sellable business value or planning your eventual exit. Please also consider investing 15 minutes in completing our FREE Exit Readiness Assessment. We do not ask for confidential information.

Test Your Assumptions About Exit Options

Five years ago we met with the owner of a successful business who told us he wanted to exit in the next few years. When asked if he knew who he wanted to sell the business to, he responded: “I guess I will sell to a third-party buyer”. He didn’t at all seem excited about that, so with further questioning, we learned that he was moving ahead under the assumption that a sale to a third-party was his only option. We also discovered that his real desire was to sell to a key employee who had been instrumental in building the business, and a son working in the business. Also, he had already spoken to a strategic buyer who was interested in buying his business and expanding into the area.

In 2019 with our help he successfully sold his business to the key employee and his son. The moral of this story is to test your assumptions pertaining to how you will eventually exit your business. And, it’s best to have an expert test those assumptions…because you don’t know what you don’t know, and you may not even recognize where you’re making assumptions. Our client assumed he would not be able to sell his business to whom he wanted to, and had actually started down a path that he really didn’t want to travel down. With the right help, his assumptions were identified and tested, and in the end, he was able to do what he really wanted to do.

Identifying and then testing assumptions is essential for a successful exit. Our client realized what he really wanted to happen because he took the first step in seeking expert assistance. You can get started today with our FREE Exit Readiness Assessment.

email@ennislp.com | 301-859-0860

What Exit Route Should You Choose?

There are not many absolutes in owning a business, but there is one thing that is absolutely certain….all business owners will stop being business owners at some point…100%. Along with death or permanent disability, the following are routes for leaving your business:

1. Sale to one or more key employees.

2. Sale to one or more co-owners.

3. Sale or transfer to children or family members.

4. Sale to an Employee Stock Ownership Plan (ESOP)

5. Sale to a third party (full or partial).

6. Become an absentee owner.

7. Engage in an IPO.

8. Liquidate for asset value and close the doors.

As you would expect, there are advantages and disadvantages to each of these exit routes, and other than liquidation, each can require much planning and time to execute in a way that will accomplish all of your values-based as well as financial goals. Certain exit routes will lend toward a higher financial payout, while others afford more control for values-based goals like sustaining culture and care for employees.

We believe that it’s imperative for business owners to understand all available exit routes and the particular characteristics of each, and how they align or misalign with their goals for the future.

Begin increasing your knowledge today with our Exit Routes eBook. You can download it for FREE on our ExitReadiness® site under PRODUCTS.