Exit planning for clients, with empathy

Accounting

My client, a third-generation owner-operator of what had been a very successful regional retail operation, was about 70 years old. Competition, supply challenges and labor issues had gradually eroded performance over the prior 30 years until there was no profit left. When you walked in the front door, the sense of pain and foreboding was immediately noticeable. The business was struggling to breathe.

I was hired as interim CEO. Despite my fluency in accounting and finance, I soon found myself involved in other activities — from deciding which staff members to cut to figuring out how to make merchandising and supply decisions. It quickly became apparent the engagement was more about empathetic leadership than spreadsheets. When I met my client, he asked, “Edward, I’m tired and I need out. Can you help me?” I knew it would be very difficult, but I committed myself to helping him. A couple of weeks later, his trust in me had grown, and he asked, “Edward, we need to trim further. My son needs to be let go. I just can’t do it. Will you do it?” Tears were flowing — mine included.

In the end, the business didn’t survive, but we engineered a soft landing. The staff was absorbed by the union and found jobs. Since then, my client has been able to enjoy his retirement years comfortably. He exited successfully and it was a win (kind of) for everybody involved.

Ownership characteristics

It’s not trivial that 10,000 baby boomers reach retirement age each day. The U.S. Census Bureau defines baby boomers as those individuals born between the years 1946 and 1964 and estimates that 2.34 million small businesses are owned by them. “Retirement” math suggests that we should expect around 130,000 of these small business owners to be retiring and exiting their business every year until 2030. This demographic force is a fact, and we must respect it.

Research does not support the notion that exiting a business is easy or smooth. Throughout a business life cycle, small-business owners serve many roles, including creator, manager, cheerleader and boss. Their identity is completely wrapped up in the business. Retirement age be damned, the owner must identify the “why” of exiting their business as a first step in that endeavor. Often transitions are entwined with personal relationships, finances and emotions.

“Exit doing”

Unfortunately, the skills and talents that sparked business ownership in the first place are rarely the skills necessary to successfully exit a business. Negotiating terms, making cash-to-GAAP conversions, and managing the termination of a 401(k) account are not routine activities for most small-business owners. The hard details of exiting the business are unavoidable and the personal side must be addressed. 

There is a new way of thinking about how we can serve our clients that are entering an ownership transition. I call it “exit doing.” The name is tautological, but it is a service that integrates the talents, skills and experience necessary to help our clients take the next step toward leaving their business. It is technical service, plus insight and the ability to inspire trust and confidence. It requires the sensitivity to recognize that “exit doing” is an inside game. First, “exit doing” is about the owner’s emotions. To illustrate, here’s an analogy:

There comes a point when life circumstances may require swift medical care beyond the scope of your primary care physician. Your surgeon then becomes an indispensable partner in your pressing, nonroutine situation. Surgeons are expert diagnosticians and exceptionally well-attuned to their patients. You need them to understand you and your problem. Their experience is necessary to inspire trust and confidence. The work of the surgeon compares to the work of “exit doing” professionals. Working on urgent matters requires significant expertise, plus empathy. Now, analogies are just that (we all know disengaged surgeons), but you get my point. “Exit doing” is more than providing regular professional services.

To assist with “exit doing,” a harvest strategy can be developed. It is an individualized action plan comprising the tools necessary to help owners realize the value of their business while also reflecting the goals and objectives of the owner personally. A harvest strategy supports the next step in the ownership life cycle of the company. Harvest strategies include the development of quality of earnings reports, valuations, operational analyses and an analysis of the company’s employment obligations. It is a comprehensive tool that offers sell-side support to business owners. Circumstances may impact the chosen strategy of transition, but they typically involve transactions like mergers, generational transfers or corporate restructuring. The key is that these are all actions that fundamentally change the relationship that an owner has with their business. We know that a key objective in any ownership transition is maximizing the return to the seller while minimizing risk. We also know that urgency is often part of the equation. Developing a harvest strategy can maximize value and minimize urgency to help the owner celebrate success.

What’s our role?

It’s simple. “Can you help me?” is what my client asked. He didn’t ask about my doctorate in business administration. We are mostly “numbers people,” comfortable in financial analysis and reporting. But now, baby boomers and aging small business owners — blindsided and stunned by the pandemic — need more than this. Call it what you want — business transformation consulting, leadership advisory or even empathetic accountancy. Technical skills and business expertise must be supplemented by the skills necessary to help our clients go through what is often a difficult and emotional process. Are we equipped to help these clients? Our willingness to listen and be empathetic will profoundly impact the client experience.

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