From the January 2007 issue of Boomer Market Advisor • Subscribe!

This way out

Like many financial advisors, personal experience led John Brown to his current niche. As a founding partner of the Denver law firm of Minor & Brown, he was practicing estate, business and family law when his father decided to sell the family's small grocery store to a third party. Because his father had no idea how to transfer the business effectively, he ended up simply holding a note, received little money down, gave the new owner the keys and walked away. The business failed the following year.

It was at this point that Brown realized there had to be a better way for owners to transfer their business -- and to get as much value as possible when doing so. The concept of exit planning was born. As the founder and president of the Business Enterprise Institute, he teaches professionals in a variety of disciplines (financial planning, accounting, law, business consulting, valuation, banking, insurance) to use exit planning to attract and keep high-caliber business owners as clients.

Brown took time to speak with Boomer Market Advisor about the value of exit planning, the time and dedication involved and how boomer clients, specifically, can benefit. The following is an excerpt of the full interview, which can be found online at www.boomermarketadvisor.com .

Boomer Market Advisor: Refresh our readers as to what exit planning is and how it's different from succession planning and a simple buy-sell cross-purchase agreement.
John Brown: There are two big differences. No. 1, exit planning focuses on the exit of the business owner rather than the business continuity itself. So, for your readers, the client is the business owner, not the business. As a result, there's a lot more to do long term. No. 2, exit planning is a complete process. It integrates lifetime objectives with what needs to be done at death. Most of the insurance and financial advisory world focuses on what happens at death, but owners like to hear about how to help them leave their business in style while they're alive, not at death.

BMA: How big is the opportunity to specialize in exit planning, especially with boomer business owners?
JB: The first wave of boomers, reached age 60, so they're starting to think about leaving their business. We've got statistics on the millions of business owners over the age of 50. We have a statistic that the average age of a seller of a business is 56. We have a statistic we use that shows that more than one out of two business owners in the country plan on leaving their business within the next 10 years. So the first thing is to focus on the boomer generation, and the fact that it's a lifetime exit. I want to emphasize that. If advisors go in and talk about buy-sell agreements and what happens at death, it's going to fall on deaf ears. The second thing is, there is a scarcity of competition. There are very, very few professionals of any stripe -- whether it's lawyers, CPAs, insurance, financial advisors, -- whatever the focus of their practice or market is, [who reach out] to this baby boomer generation as an exit planning-based practice. And that's what BEI does.

BMA: Do you take on the informal role of a therapist or counselor to help clients deal with some of the emotions they might have?
JB: You would think there's a lot of emotion tied to deciding to exit a business, and there is. But by the time they've come to see us, they've dealt with a lot of those issues. If they still have a lot to deal with, then we will develop a plan that allows them to gradually back away from the business and begin to pursue other interests, or we bring in outside help to deal with some of the issues they're experiencing.

BMA: We assume it would be a sad and sweet time as they leave a business that -- in some instances -- they've spent a lifetime creating. Is that the case with boomer clients, or is it an exciting time as they look forward to the next challenge?
JB: It varies tremendously. We had one owner who said, after the sale was complete, that he still had one thing left to do, which was to change the outgoing message on his phone to say that he had left. But sometimes they're not as ready to leave as they thought. In that case, we help them get a management team in place for the transition and at least get them started on the process.

BMA: How long is the process for the business owner?
JB: It depends on a variety of things. It can be quick or it can take 10 years or longer. It mostly depends on the owner's desire to leave -- his own timetable. Secondly, it depends on the ability of that owner to reach their exit objectives on their terms, usually financial objectives, but it could be waiting until the key employees or the children are mature enough and experienced enough to take over the business. If it's financial, usually that can't be achieved for years. This is the third step of the [exit] planning process; to grow business value. So, the financial advisor becomes very involved in that process. The length of the exit planning process is determined by the desire of the owner to leave sooner rather than later and the condition of the business to accommodate the owner's exit objectives.

BMA: When is it worthwhile for the business owner to work with an exit-planning expert?
JB: That's a typical question most advisors have. It really depends on whether or not the business has a management team, and I'd be careful to say that could just be one key person. If they don't have a key person, at least one, who will stay when the owner leaves, there is no exit strategy available. So, it's more on the composition of the business itself rather than the size of the business.

BMA: If you're talking about a process that takes years and involves a significant amount of expense, doesn't that fall on deaf ears? How do you illustrate the value of the process to the business owner?
JB: We're going to spend most of that time helping them to develop more value. So the expense is really nominal. But because it can take time, it's important that advisors charge a fee.

BMA: Do you explain to the advisors you work with how the fees are structured?
JB: Yes, we talk a lot about that in our boot camps and in our message boards and so on within BEI.

BMA: We realize there are a number of steps involved in the process and there's a significant amount of detail in each step. Can you give a brief overview of the planning process?
JB: The way I like to explain it is that exit planning is owner-centric planning. The first step of the process is to work with the owner to determine what the owner wants and needs to do. There are three universal objectives, at least as we call them. When does the owner want to leave? How much money is the owner going to need for the rest of his life? And who does the owner want to transfer the business to? It's followed usually by a fourth, which is that the owner wants to get full value for the business as it's transferred. So that's the key.

The second step is that once we learn what the owner wants to do, we determine the business value, because the business is typically the owner's largest asset. The key to exit planning is to find out what the owner wants to do and look at the resources available to accomplish that. Then, from that, we create a written exit plan that helps the owner go down the path of creating and implementing the exit plan. That will involve step three, which might be protecting the assets but also growing value.

Steps four and five will determine whether it will be a sale to a third party, a transfer to family, a transfer to key employees or a transfer to an ESOP. And the roles all need to work together. What typically happens, among professionals, is that they seize upon a particular path -- say it's a sale to a third party or maybe it's an ESOP -- and then they guide the owner's exit down that path.

BMA: How involved are you in helping to choose the path?
JB: In our form of exit planning, we seize upon what the owner wants to do and then whatever path that requires is fine with us. I have a throwaway line that maybe is appropriate now. I say that when I practiced law, when owners asked me what I thought of their exit path, I would always tell them that I didn't care. And that is the essence of turning your reader, who's a financial advisor, from being perceived as somebody selling a product to becoming a counselor, an advisor to the business owner. We're focused on what the owner wants to do, not what we have to sell, and there's plenty of work for all the professionals to do, regardless of the path taken.

BMA: It's about comprehensive financial advice instead of pushing product.
JB: It's not even just financial advice. It's much broader than financial advice. That's why another key component of this is that you have to develop a team of advisors. It's tax advice, legal advice and it's perhaps consulting advice on how to grow business value.

BMA: You have to reach out and network among other professional peers to make sure you have a comprehensive team.
JB: That's right. We train our members to facilitate the planning process, whether they have their own team of advisors or they're working with the owner's team of advisors. This is why exit planning is not as universally known as financial planning. With financial planning, you basically need the financial advisor, and then you bring the lawyer and maybe the accountant for the fine details. In exit planning, you need to involve the big three professions: the financial and insurance person, the lawyer, and the CPA. Sometimes others as well, but you can't do an exit plan without involving at least these three. The key in this is that financial advisors are the best at facilitating the process. Lawyers and CPAs are not great facilitators, typically.

BMA: How detailed is the advisor training on exit planning and how long is it before an advisor feels comfortable offering this service?
JB: It depends. That's the $64,000 question for BEI. It begins with a two-day live boot camp, or we also have an online boot camp so they can learn at their own pace. But, that's the starting point. Then they go on, assuming they then want to, and become more involved in exit planning and marketing their practice with exit planning. We have an initial one-year program that is all Web based, and it's a weekly [curriculum] that includes daily tasks. There's also the annual conference that's live. So it's quite involved. We find that it varies a lot on the amount of experience advisors have working with business owners, but we've recently added what we call the Advisor System in the last six months because we found that a lot of our members are hungry for more technical training, and we have a huge amount of it. The process is ongoing and multidisciplinary. They'll be learning alongside lawyers and CPAs, investment bankers, intimate consultants, and it's more about the process than the products.

BMA: Are you the only dedicated organization like this?
JB: Nobody else is doing this. There are other people talking about succession planning, but they tend to be from what I call a single profession, typically the life insurance world, sometimes the business brokerage world. We're growing very rapidly. We're a nationally based organization, a membership-based organization. We're probably in 45 states now around the country.

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