I. WHY GET INVOLVED?

In a competitive financial planning environment, you may find yourself looking for ways to add more value to your clients and prospects. Competitive advantages are increasingly hard to come by. Consider that over the next five to twenty years, the baby boomers--the largest generation in history--will reach retirement age. Many of them are owners of private businesses in need of financial planning. What if you could also offer yourself as a resource for business exit strategy planning?

Understand the marketplace, develop methods by which you can become an asset to the business owner, and become proactive.

The market for business owner exit strategy planning is an under-appreciated opportunity that could provide growth to your business for years to come. The key to tapping into this area is knowledge. You need to understand the marketplace, develop methods by which you can become an asset to the business owner, and become proactive.

You might say, I'm not an investment banker so why should I be involved in business exit strategy planning? What do I have to offer? The short answer is--trust. You are probably intimate with your client's personal needs and goals. Often a good advisor-client relationship becomes more than just business; you become an extension of the family. As such a trusted person, you are an ideal candidate to help plan the most complex financial event of your client's life. In order to fill that role, however, you must prepare. Remember, you don't need to be all things to all people. Rather, you can be a facilitator. Someone the business owner trusts to guide him or her down the long, often bumpy road to a successful business exit.

Again, knowledge is crucial to adding value in this potentially lucrative area. We believe this paper will provide you with a basis of knowledge on which to build.

Let's start at the beginning, the way you would begin any relationship, by getting to know your client (or prospect).

II: WHO IS THE BUSINESS OWNER?

Here we'll take a look at the American business owner by age, education, involvement in the business, and size and types of business.

The majority (over 60%) of all business owners are over the age of 50

The majority of business owners are now within fifteen (15) years of the traditional retirement age of sixty-five (65). Within the 20.5 million business owners of the 16.7 million respondent firms in the 2002 Census Bureau's Characteristics of Business Owners (CBO) Survey, over one third (1/3) were over the age of fifty-five(55) and over 60% were over the age of forty-five (45). In the 1992 CBO Survey, only 50% of owners were over the age of forty-five (45).

With so many business owners closing in on retirement age, the demand for exit strategy planning over the next several years should grow considerably.

This aging phenomenon doesn't come as a surprise; the baby boomers--the largest generation in history at approximately seventy-eight (78) million people--are getting older. This distinct group deserves further discussion.

Based on the age and sheer number of baby boomer business owners, we believe a wave of demand for exit planning is now arriving and will continue for the next five to twenty years.

Half of all business owners are baby boomers

America has been talking for years about this demographic bubble. Nearly every segment of the economy has been impacted in some way by this generation. According to the 2002 COB Survey, approximately 50% to 55% of U.S. business owners were baby boomers (age thirty-eight (38) to fifty-six (56)). Today they fall between the ages of forty-three (43) and sixty-one (61). Based on the age and sheer number of baby boomer business owners, we believe a wave of demand for exit planning is now arriving and will continue for the next five to twenty years.

Beyond just numbers, what is it about baby boomers that make them a unique group, with equally unique planning needs? According to a study done by the National Association of Realtors on 2,000 American baby boomers, this group is vastly different from previous generations.

Compared to the WWII generation, boomers earn higher incomes, married later, are more likely to be single, are healthier and are living longer, and have a much less certain retirement plan. Many had children later in life and therefore may work beyond the traditional retirement age. Boomers travel more, buy more things, own more real estate, and take more financial risks (i.e. more debt) to facilitate their lifestyle. Simply put, they make and spend more money than their parents did. For example, if they want a new refrigerator, they simply buy it and pay it off over time, whereas mom and dad would have saved their money first and then bought what they needed.

Consider these findings:

* Most boomers live in two-income households, with a median income of

$64,700 in 2005, which is 31% higher than the median for all households.

* The boomer generation makes up 37.5% of U.S. households, but receives

nearly half of all aggregate household income.

* Three quarters (75%) of respondents said they are not financially prepared

for retirement.

* Boomers plan to retire at a median age of seventy (70), while 27% say they

never intend to stop working.

Clearly, boomers may work hard and make more money but they also play hard. This might explain why, according to the Federal Reserve 2004 Survey of Consumer Finances, the median net worth for households with heads between the ages of 45 and 54 is only $144,700. After a lifetime of spending freely, many boomers haven't saved adequately for retirement. Or if they have significant wealth tied up in a private business, they might have significant debt as well. Your client may need to adjust his or her lifestyle after exiting the business. Therefore, understanding current lifestyle and willingness to change is paramount to planning an exit strategy that will satisfy the business owner while also maintaining financial stability for the rest of his/her life.

Business owners are highly educated

Business owners as a group are a curious bunch. 64% of business owners possessed at least some college education at the time they started or acquired ownership in their business. 23% had a bachelor's degree and 17% had a graduate degree.

This factor may not seem all that important in the context of business exit strategy planning. However, it does speak to the personality of a typical business owner. Highly educated people are often ambitious. The go-getters of society that do and accomplish more compared to most people. These individuals may not want to retire at sixty-five (65). They may look for other entrepreneurial opportunities to explore during the retirement period. Or they may want to maintain a role in their businesses. It is therefore important to keep in mind the owner's background and interests when planning a business exit strategy.

Owners of employer firms rely heavily on their business for their livelihood

Type of business is a key distinction when determining the needs of a business owner client. An overwhelming 70% of employer business owners reported that their business was their primary source of income compared to 44% of non-employer firms. The owner of a firm with employees tends to need more complex exit planning compared to a sole proprietor for the following reasons:

* There are simply more stake-holders (i.e. employees, possibly more than one

owner, etc.

* Employer firms tend to be larger, with greater scope and scale. For

instance, approximately one quarter (25%) of all American businesses are

employer firms as opposed to non-employer firms or sole proprietorships.

Yet, the former generate 96%-97% of all sales receipts. In 2002, the

average employer firm generated $1.7 million in sales receipts, while the

average sole proprietor made just under $44,000.

* Employer business owners tend to be more financially dependent on their

businesses. An overwhelming 70% of employer business owners reported that

their business was their primary source of income compared to 44% of non-

employer firms. It makes sense. The larger business is more likely to

support a livable income.

Based on our distinctions here, the business owners most in need of exit strategy planning fall into that one quarter of all businesses that are employer firms.

Most business owners' primary function(s) is to manage day-to-day operations

American business owners are decidedly hands-on. 71% of the majority interest owners of non-employer firms manage day-to-day operations compared to 56% for the owners of employer firms. So what does this mean for you as an advisor?

Let's examine an example to find the answer.

Bill Brown started his career at a major beer distributor at age twenty-two(22). He has always loved great beer but for years he didn't see domestic brewers producing the kind/quality of beer he and his friends liked to drink. So he started making beer in the basement of his house in 1991. He was forty (40) years old at the time. Soon after, he started his own brewery. This was about the time craft breweries cropped up all over the country so competition quickly grew fierce. He poured all his cash into growing the business, worked 100+ hours a week, and didn't sleep much.

The problem is, he (the business owner) doesn't know how or when he wants to exit the business. He simply hasn't had time to think about it.

By the late 1990's, the craft beer industry had matured and many small breweries had gone out of business. Yet, hard work paid off for Bill. His company has survived. Now, Bill Brown's company generates annual sales of $50 million. He is fifty-six (56) years old and is the sole owner with no obvious heirs to take over the business. He's starting to feel burned out. Sure, he's a wealthy man, but all of that wealth is tied up in his company. If he could pull out the money, he could retire early. The problem is, hedoesn't know how or when he wants to exit the business. He simply hasn't had time to think about it. It's a quality problem, but a problem nonetheless.

Bill won't trust just anyone with a business he has nurtured and grown from infancy for the last sixteen years. He regularly receives buyout offers from big industry players with deep pockets. But money isn't his main concern. He doesn't want to see his hard work turned into a commodity. He would rather work until he's seventy-five (75) than see the business suffer un¬der the wrong ownership.

Bill Brown is one example of the type of business owner who might appreciate informed, knowledgeable guidance on business exit strategy planning. Others may own smaller or larger businesses, may have heirs to whom they can pass the reigns, or may have other forms of wealth. Each situation will be unique. But the one thing many will have in common is a passion for their business. Owners are often highly invested--both financially and personally. Many will feel a great attachment, particularly those that are involved in it on a daily basis. It is important for you, as the advisor, to understand these issues and approach discussions of an exit strategy accordingly.

Women as business owners

Another group that deserves closer study is women. Women are increasingly becoming business owners (41% of total private businesses in the U.S. vs. 33% ten years ago) and their needs and preferences can differ from their male counterparts.

According to an October 2006 study (Exit Strategies of Women and Men Business

Owners) by the Center for Women's Business Research, women differ from men as business owners in three important ways:

* Women are more interested in certain concerns regarding the sale of their

business; how the sale of their business impacts employees (86% vs. 61%);

the buyer's identity, personality, and background (72% vs. 39%); and the

buyers plan for the business (79% vs. 52%).

* First time women business owners are often less prepared to exit their

businesses than seasoned women business owners. This difference does not

exist among men.

* Women (37%) are more likely than men (19%) to pass their business down to

their daughter(s)

What these differences tell you is that the approach may need to focus more on the overall impact of an exit strategy on all stakeholders in the business and the exit strategy may more often steer away from an outright sale. This may create additional complications and require more and/or different resources. We delve more into the 'internal' transfer vs. the 'external' transfer in the next section.

To sum it all up, we now know that your most likely (prospective) business owner client is over fifty (50) years old, is a baby boomer, is more likely than in years past to be a woman, is well educated, relies heavily on his/her business for income, and is extremely involved in the business. How do you go about using this information to help shape business exit planning strategies for said clients? First, let's discuss this practice area as its own marketplace. What has been done already? How much competition? How big is the market?

III. AN UNDER-APPRECIATED OPPORTUNITY

An Internet or library search will turn up a limited amount of information on the topic of business exit strategy planning. Despite the growing demand, there are surprisingly few reliable resources available to business owners.

As a trusted advisor with access to service providers, financial tools, and information, you can make a difference. You don't need to be an expert but you can become the point person in charge of planning this event.

First, let's establish that this is a fragmented marketplace. It consists largely of brokerage firms, advisory firms, M&A firms, valuation experts, and consultants, offering varying degrees of business and planning services. Despite a multitude of players, branding appears nonexistent and no one has been able to establish large-scale support teams for business owners. One can find a few articles on the subject. However, can you imagine entrusting the biggest financial event in your life to an article? An article can't introduce the business owner to service providers, and certainly can't give personalized advice about his/her situation.

This is where you come in. As a trusted advisor with access to service providers, financial tools, and information, you can make a difference. You don't need to be an expert but you can become the point person in charge of planning this event. You play an invaluable role as the first line of defense for your client in analyzing the options, finding the right service providers, and seeing the transaction through to the finish line.

More specifically, your ability to help the business owner understand the full range of options, of which many are unaware, is a key way to add value to the relationship. With a complete set of exit strategy tools on your belt, you can open up a much more informed and well-rounded dialogue. For instance, you might discuss the potential for 'external' transfers as well as 'internal' transfers of the business and compare the pros and cons of each.

'External' transfers are intuitively appealing. Buyers are often 'Strategic' (industry) or 'Financial' (Private Equity) in nature and typically offer the highest possible Value because they can apply 'synergies' to deal valuation. A good M&A intermediary will vie for the sharing of these synergies with the selling business owner.

'Internal' transfers, often overlooked, may not offer the highest Value since synergies are usually not available but they can provide other advantages, depending on the owner's motives.

These types of transfers include the following:

* Employee Stock Ownership Plan (ESOP) Transfers

* Management Buyouts (Sales to Family and Management)

* Gifting Strategies

* Family Limited Partnerships

* Charitable Transfer Strategies

The key advantage of an 'internal' transfer is that a business owner retains a greater degree of control over the process. One might be able to designate the price and the terms of the transfer, which fits nicely with the owner's need for independence and control over his/her future. Indeed, 'internal' transfers are often referred to as 'controlled' transactions.

On the flip side, negotiating with family members and key employees comes with unique risks. These individuals and their advisors will require disclosure of detailed and confidential information. Most owners prefer not to share all information with employees, creating an inherent conflict of interest in the transaction. The most important step a business owner can take in this situation is to engage an intermediary--typically an existing advisor to the business. The existence of trusted advisors in the process engenders objectivity and controls the level of emotion involved in the negotiation.

In short, the lack of reliable information and guidance on business owner exit strategy options provides you, the advisor, with a window in which to enter the equation, armed with knowledge, and prepared to add value.

IV. HOW BIG IS THE MARKET?

Based on our discussion of the identity of the typical American business owner, it's safe to say the number of individuals in need of exit strategy planning is significant and growing. But what do the hard numbers tell us about the size of the opportunity? A number of surveys have attempted to quantify the coming "glut" of private business sales. Here are a few of the statistics just to give you an idea:

According to an NFO WorldGroup study performed in 2002, the number of business owners planning to retire was expected to increase from 50,000 per year in 2001 to 750,000 annually by 2009.

Of the total 20.5 million business owner respondents to the 2002 Census Bureau COB Survey, 5.6 million are owners of employer firms. We know that 61% of all business owners are now over the age of fifty (50). If we apply this percentage to the number of employer firms, the resulting pool of individuals in need of immediate planning comes to 3.2 million business owners.

...the glut (of business sale) may drive valuations down precipitously. This makes early exit strategy planning all the more important and gives you yet another reason to become someone who can guide the process.

If the average private employer business generates $1.7 million and 61% of all private employer firms change hands over the next several decades, this translates to approximately $5 trillion in sales. If these businesses sell for even 1x sales, a tremendous amount of money will flow into the marketplace.

This last point brings up the issue of valuation. Given the sheer magnitude of businesses coming up for sale, business valuations may come under pressure if supply exceeds the number of potential buyers. In the early years, younger corporate executive baby boomers could help the situation as they attempt to transition out of corporate jobs and buy up private businesses. However, as the younger boomers close in on retirement, the glut may drive valuations down precipitously. This makes early exit strategy planning all the more important and gives you yet another reason to become someone who can guide the process. Even if your business owner client is in his or her early forties and not thinking much about retirement, why wait to broach the discussion? Your client will thank you down the road.

While the numbers are not exact and one can hardly predict the pattern and pace of baby boomer retirement, it is clear that over the next few decades, business owners will flood the marketplace with the demand for business exit strategy planning and in turn, a wealth of assets in need of management.

Have you done an analysis of your current clients and prospects to determine who might be in demand of exit strategy planning advice?

V. A CALL TO ACTION; BECOME PROACTIVE

Many of you have established networks of business relationships. You build business relationships with friends and acquaintances. You attend meetings of various social and special interest groups. You might even send out mailers on a regular basis. Have you done an analysis of your current clients and prospects to determine who might be in demand of exit strategy planning advice?

If you haven't done this--when this practice area is still fragmented and in relative infancy-- now is the time to become proactive. Attain the knowledge about exit strategies that will help you add value. Develop relationships with service providers or find out who in your company can provide the necessary services. Finally, sit down with your current clients and start asking the right questions (see White Paper, The Ten (10) Best Exit Strategy Questions An Advisor Can Ask a Business Owner).

If you don't have any or many business owner clients, why not seek them out? You now understand who they are, what kind of lifestyle they might lead, how they approach their businesses. Where should you look?

First off, you might be a customer. Take a look at the services your family uses every day to care for your cars, homes, pets, etc. Who owns the restaurant chain franchises in your area? These are often privately owned franchise groups. Make a point to introduce yourself.

Other prime suspects include dry cleaners, body shops, hardware stores, insurance agencies, accounting firms, landscaping companies, pool companies,... You get the idea. The next time you drive around town, take note of the corporate headquarters you see. Collect the advertisements you receive in the mail--they are a prime source of private business prospects.

Other places you might consider include the following:

* Your local Chamber of Commerce meetings (become a member)

* Newspaper ads

* Trade magazine ads

* Local fairs and festivals (check out the sponsors)

* Nearby franchise restaurants

* Your family doctor's medical practice

The list is endless. Business owners are often right underneath our noses. They aren't usually the ones you see making headlines on CNBC. They don't have flashy commercials on television. They are more typically the neighbors down the street.

VI. CONCLUSION: TAKE YOUR BUSINESS TO THE NEXT LEVEL

In closing, this paper demonstrates that there is a vast and growing market for business owner exit strategy planning. The aging of the baby boomer generation is driving the demand for this type of planning and while many players are involved, few have established the support teams necessary to add value. We challenge you to get educated and become proactive. It's still early in the game.

Remember, you don't need to become a financial advisor/investment banker/business valuation analyst/tax advisor all rolled into one. The idea here is to better understand the needs of the business owner client and add value by coordinating the process. We believe this will greatly expand the scope of your franchise and allow you to take your business to the next level.