Monday, October 20, 2008

5 Tips for Weathering the Economic Storm

Challenging times present great opportunities to engage your clients and to re-focus your energies on your business development. Let's face it, when things are good, we are moving along and tend to not focus on improvements - it's human nature. So, many of the opportunities that are presented during difficult times, include the factors that you can control. You cannot control the stock market and the economy, but you can control your mindset, your communication with your clients, improvements to your service offering, a tune-up of your business plan, and positioning for for eventual recovery. Those are the topics dicussed below and the focus of this week's newlsetter.

1. Protect Yourself Against Getting Caught Up

The advisory business is like a game of golf - 90% of the game is played in the 5 1/2 inches between your ears. How you choose to remain focused and unaffected by the volatile economic events will directly impact your success. One of the easiest things to do is get 'caught up' in the turmoil. As one consultant put it, don't 'catch your client's cold' - which is fear, doubt, and worry about the future. You cannot control those fears and you cannot control the economy, but what you can do is keep your focus. This is critical to you weathering the storm.

2. Increase Your Communications with Your Customers

Although you cannot control 'outside' events, you can control the amount of communication that you have with your clients. Your clients look to their advisors for guidance through these storms. And, they are looking for the confidence that they have momentarily lost. Talk to your clients. Silence can be a great enemy in this environment. In my experience as a wealth manager, the single greatest thing that held my business together and allowed it to expand quickly was constant, pro-active communication with my clients. Try this out, I heard of it many years ago, it is the 12-4-2 program - your A clients get 12 calls per year, 4 quaterly updates, and 2 face-to-face meetings. That simple system - and the fact that your clients can rely upon that level of contact - allows you to structure your 'client fulfillment system' and begin to organize your business around making more profits, instead of reacting to client concerns. Of course, during times of crisis increased levels of communication help. However, it is the consistent communication that keeps the client comfortable in your relationship.

3. Add More Value to Your Customer for the Same Price

In tight times, you will want clients to know that you are doing more for them. Host a dinner. Make an extra call. Send a hand-written note. Or, perhaps join a program like Pinnacle's to offer advice to your business owner clients on how they can develop an exit strategy plan from their business. Increase your business during hard times so your clients can see the confidence that you have in the future and your ability to deliver better service and solutions to them on a consistent basis.

4. Work on Your Business Plan

Now that you've addressed the immediate issues of communicating with your clients and increasing the level and type of services that you will provide, go to work on your own business plan. We are in the 4th quarter of 2008 - time is flying by. We will wake up tomorrow and be celebrating the holidays. Where will your business be on Dec. 31st? Will you have hit your goals? Pull the business plan out of your draw and get back to work on improving your own business. Remember, even though we are advisors, we are also business owners. A business is built to make a profit. And profit comes from organized thought. Wipe the dust off your business plan and make improvements to it that will allow you to continue to bring in new clients so that you can . . .

5. Position Yourself for the Recovery

After the Wall Street meltdown came the greatest rally for the stock market, ever. Is that a sign of recovery? Well, I became quite a student of the markets and I like what one expert once said - that a man who has a heart attack does not get up and run a mile the next day. The markets have had a heart attack and yesterday's rally most likely does not mean that the trouble is behind us. No matter. The markets and the economy will recover - they always have and always will. They will be different than they were before, but such is life. Change is a part of life and we need to adapt to it. The winners in this meltdown will be those who address short-term needs of their clients and businesses, while also looking ahead to position themselves for the future.

How are your positioned for the recovery?

Do you know that there a millions of Baby Boomer business owners and trillions of dollars in illiquid wealth that will be transferring out of those businesses in the next 5 to 20 years as these Baby Boomer business owners look to retire.

Position yourself for the future. Learn a new skill set that will differentiate you from the competition.

Take a look at all of the levels that Pinnacle offers for you to participate in this huge exit strategy planning marketplace. We have advisors following the advice above and exploding their businesses forward. What is standing in the way of the success and profit that you want for your advisory business? Perhaps Pinnacle has an answer . . .

If you need any assistance at all, do not hesitate to contact our office at 617-367-5772 - we look forward to hearing from you.

Specializing in Business Exit Strategies, John M. Leonetti, Esq., M.S. Finance, CM&AA founded Pinnacle Equity Solutions to provide exit strategy planning services to business owners as well as education and training programs for professional advisors. To learn more about John's Exit Strategy Services and his recently published book, "Exiting Your Business, Protecting Your Wealth", visit

Friday, October 10, 2008

An Exit Strategy Planning Case Study for our Review

I thought that we could try putting the exit strategies training to work this week by examining a 'hypothetical' planning case - it is based off of a client; however confidentiality prevents disclosing actual figures.

In this case, we have two business owners - each equal partners in a slow growing business. The owners each own other businesses and are primarily interested in seeking exit strategy options and advice regarding their slow-growing 'advisory' business.

The owners are in their early fifties and each would like to draw some equity out of the business in question. They have approximately 25 employees with standard benefits plans in place. The owners have minimal savings outside of the business and are not well versed in the work that their attorneys have done on the estate planning side.

The business produces approximately $1.5 million in profits, for which the owners pay taxes on a large percentage. The company has elected S Corporation status, so the shareholders are paying taxes at the individual level.

Neither owner believes that they will want to, or need to, sell the business in the future. In fact, there is much evidence that the marketplace would not reward them for their efforts due to the specialized 'advisory' nature of the work that they perform.

How should we begin analysis of this planning engagement to begin to deliver an exit strategy solution to these owners?

Well, the first step in any exit strategy planning engagement is to discover what the business owners truly want. In this case, there are some differing opinions amongst the owners as to future prospects for the business. Accordingly, each owner has separately started growing other businesses. In addition, each owner is paying quite a bit in taxes each year - something that they would like to reduce if they could. In addition, the owners trust their employees but would likely not see them as successors to the business.

So, the owners ideally would like to hold onto the slow-growing business and set up an exit strategy plan for the future.

It is important to note that this engagement is actually 2 engagements. Pinnacle's system for designing exit strategy plans is weighted towards a personal analysis of each exiting owner. So, it is important to note that solutions will be offered at the company level, but applied to each of the owners individually.

Each of these owners has a Low Financial Readiness for their exit and a Low Mental Readiness for an exit. Our training shows us that there are five major exit options available to these owners - these include a sale of the business, a recapitalization, an ESOP, a Management buyout, and a gifting program.

With a Low Mental Readiness for an exit (as well as challenges with getting full value in the marketplace) the sale transaction is quickly discarded. After that, the recapitalization is put to the side because of the slow growing nature of the business. The owners feel that they are too young to begin gifting shares to anyone (although in the absence of understanding their potential estate taxation they may not truly appreciate the benefits of this 'longer term' strategy.) This leaves management buyouts and ESOPs as the likely remaining options (NOTE: In our training we do not perform thorough analysis on the 'run it forever' business owner - we assume that our owners are looking for an exit of some kind.)

Under the management buyout option, the owners would need to set a long-term, detailed plan to begin to transition responsibility in the company to the management team. This is not currently taking place but is a possibility over time. This would include new hires (with a clear description of the qualities of the person(s) that would be hired) including potential to run the business one day. We will not delve into the details of this strategy here because we are presenting an overview of the exit strategy planning needs of these owners. We will note, however, that a management buyout needs to be carefully built because these owners do not have very much money saved outside of the business - making the MBO a risky proposition today.

Finally, under the ESOP option, the owners would be looking at establishing an ESOP trust as a buyer for their shares. They will study the costs and inconvenience of establishing and running an ESOP and weigh that against the tax advantages and opportunities for personal liquidity that come with the ESOP. If the cost/benefit analysis produces substantial advantages to the owners, they will install the ESOP and monetize their investment over a number of years as they get closer and closer to retirement. In conjunction with this strategy, they will look to the future and continue to train their management team on taking over the business in the future. The key point is that the ESOP will allow these owners to monetize portions of their business over time in a very tax efficient manner.

Why be the Exit Strategy Planning Quarterback?

The advisor who brings this type of solution to the exiting owner is sure to not only win the role of 'trusted advisor' in this engagement, but will also position their advisory services within this valuable relationship.

Different advisors for this type of owner include an attorney performing estate planning work, an accountant analyzing tax saving strategies, a financial advisor looking to manage the liquid investments and plan for their retirement, an insurance provider looking to help these owners with their risk management, a business management consultant looking to assist with the efficiency of the operations, and a merger and acquisitions professional who wants to position themselves in the relationship in order to do future sales transactions on the other businesses being built (not an insignificant piece of business.)

So, no matter which type of advisor currently serves this business owner, the exit strategy planning advice is critical to these owners establishing a plan that assists them with the protecting of their hard-earned wealth that is sitting in their illiquid business.

These businesses are out there - Baby Boomers number in the millions in the United States alone. And, in light of the current economic crisis, there will be more and more business owners looking ahead to protecting their wealth, now that they are being reminded of how precarious their situations really may be.

So, as their advisor, it is imperative that you offer this conversation and these types of solutions to the exiting owners that you serve. In doing so, you deepen your relationship with this special group of clients and perform a service that has a value that is immeasurable for the owner who is in need of this type of advice. The owner gets an exit strategy plan and you get a growing list of very loyal clients who pay you for the value of this special advice.

I wish you the best of luck with your exit strategy planning.

If you need any assistance at all, do not hesitate to contact our office at 617-367-5772 - we look forward to hearing from you.

Specializing in Business Exit Strategies, John M. Leonetti, Esq., M.S. Finance, CM&AA founded Pinnacle Equity Solutions to provide exit strategy planning services to business owners as well as education and training programs for professional advisors. To learn more about John's Exit Strategy Services and his recently published book, "Exiting Your Business, Protecting Your Wealth", visit