Spring is not only a good time to sell a home, but a business as well. Nevertheless, a sale takes years of planning and that's where an advisor can add value.
Spring may be just around the corner, but advisors helping clients sell their businesses in the coming months better have started planning a long time ago.
Spring is well known to be the ideal time for selling not just homes, but small businesses. Most deals take four to six months from start to finish. Begin in May, and you’ll likely close in October or November. Wait much longer and it’s the holiday season when everyone checks out mentally.
Nevertheless, unlike a home, which can be staged and sold relatively quickly, a business takes more time, effort and expertise to unload. That’s why small business owners need to consider succession planning and retirement years in advance with their advisors taking active roles in the process. Not only can wealth managers alleviate financial uncertainty through clear planning, but they can also provide a professional sounding board for what can be a complex, emotional process.
Amy Knox, head of practice management and succession planning solutions at Axtella, for one, believes, the best time to start is at the outset of the advisor/client relationship. All too often, business owners leave succession out of the regular cycle of financial planning and company strategy. Advisors can provide value by introducing succession planning as a crucial, ongoing discussion, according to Knox.
“I think about business and exit planning as a continuous cycle rather than a linear process. Owners who have never sold a business can find tremendous value in working with an advisor who can help them get started and guide them through what can often be a very involved process,” Knox said.
Knox says advisors can begin the conversation by asking about the client’s long-term goals. Questions like: How do they want their business to grow? What are their personal and company values?
In Knox’s view, financial goals are an important part of the discussion, but a successful sale requires emotional alignment as well. Defining a client’s priorities will help them position their business for a successful sale in the future, but it will also improve their lives today.
“Selling a business is often a complex process that can trigger a wide range of emotional responses, both positive and negative. Business owners can make emotion-driven decisions, like over-or undervaluing their business based on outdated schools of thought, writing off potential buyers because of feelings instead of facts, and assuming that the process will be seamless and quick,” Knox said.
As an objective third party, an advisor can guide their client back to a process-oriented approach, according to Knox. They can identify gaps in logic and suggest methodical plans, which can help the client achieve higher valuations, stronger offers, and a more streamlined transition. In turn, this can reduce the emotional impact of selling a business and allow owners to exit with confidence.
Elsewhere, Liz Lenz, managing director of practice synergies & enterprise consulting at Concurrent Investment Advisors, believes succession is best discussed as a long-term growth and continuity exercise. In her view, the advisor’s opportunity to become a ‘category-of-one’ for their client is many years prior to a business exit or retirement.
“Advisors should begin succession and continuity planning conversations as early as five to ten years before a business owner intends to exit. That five-to ten-year window presents a critical opportunity to make intentional decisions that can increase the value of their business and ensure optionality when planning for their exit,” Lenz said.
When approached early, succession planning becomes a proactive exercise to help them build a durable business that can help the client maximize their business’ value, according to Lenz.
“I recommend advisors lean into helping business owner clients by ensuring clients both understand how to maximize their business’ value and define what ‘exiting on their terms’ means,” Lenz said.
In Lenz’s opinion, it is the job of the advisor to bring in the right tools and experts to help clients understand what qualitative and quantitative levers drive their business’ value. By helping clients understand their business’ value, advisors can open doors to more strategic monetization opportunities. Whether that involves recapitalization, partial liquidity, structured financing, or a full sale, optionality requires preparation,” Lenz said.
The personal challenges of succession planning are significant. For most business owners, their professional identity is deeply intertwined with their personal and community relationships. The idea of that connectivity ending abruptly can feel unsettling. If an advisor intends to be a client’s trusted partner in navigating their financial and personal challenges after they retire, Lenz says they must be willing to lean into the deeply personal conversations about selling their life’s work before they exit.
OLD ADVISORS, NEW TRICKS
Advisors who focus on serving business owners will ultimately face the same question as their clients: how and when to transition their business to a new owner, whether that is the next generation, an outside third party, or a key employee. Axtella’s Knox says the similarities between the succession plans of advisors for their own businesses and the plans of their business-owner clients are significant, more so than any differences, and recognizing these parallels is essential for both personal and client-focused succession strategies.
“When an advisor helps a client navigate selling their business, the advisor gets to see the full process before they must do it for themselves. They can observe how to stay true to their business values while remaining flexible in negotiations. They can see what it looks like to find the right business partner both financially and personally. When they discuss a client’s long-term goals, they can also think about their own,” Knox said.
Just as advisors guide their clients to achieve emotional readiness, create and maintain a process-driven approach, and remain grounded in facts, advisors must apply these same values to their own planning in her view.
Concurrent’s Lenz, meanwhile, says it is “truly a gift” that advisors can learn from their clients when navigating their own succession planning.
“Advisors working with business owner clients provide them with a mirror to ask themselves the same questions they ask their clients: How can I build a durable business? What does an exit on my terms mean? What will it take to execute?” Lenz said.
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