Where Financial Advice Fails Business Owners (OPINION)

I confess, I’m a bit jealous of financial planners. It’s not the work they do that turns my eyes a shade greener. What I envy is their proximity to business owners and the opportunity it gives them to have “the talk.”

The talk, of course, is a discussion around exit planning and how best to prepare for leaving your business. While I relish the chance to open up dialogue about selling and exiting a business, it can be a difficult topic for many advisers and their clients.

The question of which adviser should quarterback the exit planning conversation with business owners is up for debate. The frontrunners tend to be attorneys, accountants or financial planners. While all of these professionals should be well-versed on the topic, financial advisers in particular have the perfect platform for the exit discussion: planning for retirement.

Most studies show that business owners have anywhere from 65 to 85 percent of their net worth trapped in the equity they’ve built in their business. Yet few have a plan for how to turn their most illiquid asset into cash. If proceeds from a sale make up the bulk of an owner’s retirement nest egg, it seems hard to overstate the importance of making sure that money will be there when the time comes.

I asked Josh Patrick — founder of Stage 2 Planning in Vermont and a 21-year veteran of the financial planning industry — why financial advisers don’t have in-depth conversations with business owner clients about exit planning.

“The short answer is because they don’t know they’re supposed to,” he said.

The longer answer according to Mr. Patrick is that most advisers don’t know how to give comprehensive advice on exit planning, nor is there any real curriculum for Certified Financial Planners.

As a result, owners are mostly left on their own when it comes to understanding how to plan for the sale of their business.

After a decade in the M&A world, I’ve come to believe that the only thing harder than starting a business is figuring out how to successfully leave it. The idea seems so far off that many owners assume they’ll just deal with it when the times comes, not knowing that “when the time comes” usually means “too late.”

Unlike getting a house ready to sell, which may require a few weeks or months of pre-sale preparation, it can take years to get a business primed for the owner to leave. There is no such thing as a slam-dunk exit strategy: They are all complex and require careful planning.

On the bright side, organizations exist to help fill the knowledge gap. The Business Enterprise Institute (BEI) provides exit planning resources for owners and comprehensive training for advisers. Larger firms like Merrill Lynch and BKD now have in-house exit planning solutions. And groups like The Platinum Years even offer advice on the personal and psychological aspects of exiting a business.

But for every financial adviser who has been trained on how to have the exit planning conversation, there are many more who either don’t address it, or just scratch the surface. According to BEI’s most recent Owner Survey, only 15 percent of owners have had as much as a single conversation with any adviser about their wish to stay or exit their businesses.

With 70 percent of the 12 million Baby Boomer-owned businesses expected to sell over the next 10 to 15 years, it’s time for the exit planning conversation to emerge from the shadows and take center stage.

Business owners don’t know what they don’t know about planning their exit, and that’s okay. It’s up to the pros to help guide them to a successful culmination of a lifetime of work. If you advise business owners and don’t want to quarterback the exit plan, then find someone who does. Just don’t drop the ball on what will almost certainly be the largest financial transaction of a business owner’s life. 

Barbara Taylor is the co-founder of Allan Taylor & Co., a boutique mergers and acquisition firm in Bentonville. She is a regular contributor to Forbes.com and a former New York Times blogger. You can follow her on Twitter @ballantaylor visit her company website at http://www.allantaylor.co/.