Teamwork Makes the Dream Work: Exit Planning from a Leadership Coach’s Perspective

Operating a successful business involves collaboration among various professionals, including insurance agents, attorneys, financial advisors, leadership coaches, and accountants. It's important to find trusted advisors who can help you navigate the complexities of owning and running your business. In addition to having a team of professionals in your corner, you also need a comprehensive business plan that includes an exit planning strategy. We interviewed Dan Woods, a Certified Exit Planning Advisor and Leadership Coach out of Central Illinois, for expert insights on exit planning.

How did you get started with exit planning and which aspects do you find most important?

Exiting a business successfully requires a well-trained team and a clear successor. My first role as a hospital CEO in a small Iowa community highlighted this need. 10 managers were reporting to me, and most of them lacked prior leadership training, which is a common issue, especially in businesses with fewer than 200 employees. We had filled a nursing department manager position based solely on nursing skills, ignoring the need for supervisory experience. This led me to hire an outside consultant to develop a leadership and management training program. Effective management and smooth operations are crucial for a successful exit plan, alongside all levels of succession for maintaining profitable daily operations.

What kind of businesses have you worked with?

I've worked with a wide variety, from solo attorneys and small physician groups, to local and national retail sales, heating and air conditioning, agricultural products, personal services, software, manufacturing, and construction. Small businesses and professional practices often lack significant value without the original owner, if he or she is the primary revenue producer, as customers tend to remain loyal to the initial practitioner. This poses a challenge for new owners who may bring their own contacts but struggle to retain existing customers.

What is your focus during exit planning?

As a Certified Exit Planner, I concentrate on leadership coaching and developing future leaders to ensure long-term business value and continuity, whether the owner plans to exit soon or in the distant future. My approach complements traditional financial and legal planning by preparing successors, such as family members or key employees, to manage the business effectively. I emphasize maximizing business value beyond the transactional aspects, reducing dependency on the owner and fostering a mindset that empowers successors for sustainable growth and profitability.

How do the various professionals involved in exit planning contribute to the overall process?

Collaborating with various professionals-including accountants, attorneys, financial planners, and even mental health counselors - is essential to achieving the seller's business, personal, and financial goals. Consulting a financial advisor is crucial when selling a company or financing a buyer to manage proceeds effectively, whether through investment or charitable donations. Proper financial planning ensures that significant payouts, like a $3 million payday, are aligned with personal financial objectives.

When does it make sense for a business owner to start exit planning? Should a new business owner be thinking about their exit plan?

Establishing an exit plan early is essential for a strong strategic plan, ensuring alignment with personal and business goals over the next three to five years. Regardless of immediate profitability, maintaining and increasing long-term business value is vital. For example, I work with a group of siblings who recently took over a family business and are developing a shared vision, regularly updating it to include growth in market share and profitability. Effective leadership and investing in infrastructure, as well as human and social capital, are key to sustainable growth and long-term success, even if a sale or transition is decades away.

How important is it for a business owner to have a business plan?

A business plan is crucial for securing financing or equity for new ventures. This is where a bank can help with financing or applying for an SBA loan. An exit plan is equally important for strategic business planning. Both address key factors like competition, niche, and branding, which build business value. Beyond financial metrics, it's vital to focus on intangibles like brand reputation, employee quality, and unique processes that enhance the multiplier effect in business sales. Recognizing and strengthening these intangibles early can significantly increase business value and prepare owners for unexpected exits.

What advice would you give to experienced business owners who have been running their business for over 10 years but still need an exit plan?

Creating an exit plan is a valuable investment in their most significant asset: their business. This process, done in stages, to first safeguard against uncertainties by incorporating the 5 D's (Divorce, Disability, Disagreement, Death, Distress) into the strategy. A Certified Exit Planning Advisor (CEPA) helps guide critical employees, families, and professionals in planning the business transition and life after. Early preparation is crucial for management succession, legacy planning, and charitable giving, though many baby boomers only recognize its importance as the transition time nears.

When does it make sense for a business owner to start preparing the next owner to learn the ropes and take over?

Business owners should start preparing a successor, whether a family member or from the management team, about three years before the transition. This intentional process involves developing the successor's leadership skills and building key relationships with support from trusted advisors like accountants and attorneys. The successor should familiarize themselves with major clients, especially if the business depends on a few key customers. When choosing a successor, evaluating their experience, competencies, and track record is essential while clearly aligning values and expectations for expansion, stability, or navigating changes.

What transition options are available for passing the business to another party?

With the guidance of your investment banker, wealth advisor, and accountant, you can explore various financing options, including seller-financed deals, loans, private equity, and partnerships. If upfront funds are insufficient, a seller-financed deal allows you to pay part upfront and the rest over time, with the seller acting as a lender. For succession, consider options like family transfers, selling to partners, a management team buyout, or an Employee Stock Ownership Plan (ESOP). Alternatively, you could sell to a third party, pursue re-capitalization, or explore an Initial Public Offering (IPO). If necessary, you could also consider liquidating the business by selling assets and addressing legal and tax obligations.

With a wide range of options available, coordinated training and teamwork are crucial for achieving your dream. Exit planning requires proactive strategies to maximize business value and facilitate a smooth transition. For tailored advice, consider consulting a Certified Exit Planner or a financial professional, like one of our First Mid wealth management advisors.

Wealth management products and services offered through First Mid Wealth Management. Non-deposit products and services through First Mid Wealth Management are not insured by the FDIC, are not bank deposits, are not guaranteed, and may lose value.

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