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AICPA Personal Financial Planning (PFP)
The Exit Blueprint: Strategies to Maximize Value and Minimize Risk
00:30:50
When business owners skip exit planning, the fallout can be brutal; value lost, families divided, legacies diminished. But with the right strategy, an exit isn’t chaos, it’s a launchpad: valuations climb, transitions smooth out, and owners step...
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- [00:03]
A
Business exits don't happen in a vacuum, but when they arrive without a plan, the ripple effects they can be devastating. Value is lost, legacies are fractured, and what should have been a smooth transition becomes a scramble. But with the right strategy, the story looks very different. Suddenly, timelines are clear, valuations are stronger, and owners aren't just walking away from their business, they're walking toward the future they envisioned. Today we're joined by CPA attorney financial planner Dan michaeljohn from Focus Partners wealth, who helps business owners exit with success. His unique blend of legal, tax and financial planning expertise makes him one of the rare advisors able to guide clients through every layer of the exit journey, from succession and valuation to wealth transfer and legacy planning. Welcome to the AICPA's Personal Financial Planning Podcast. I'm Kari Sinnott. As the manager of the Financial Planning Credential exclusively available to CPAs, my role is to keep you informed, educated and connected to a premier community of thought leaders delivering trusted financial planning. We explore the full range of planning topics and the current events shaping our profession. If you're a CPA financial planner or simply want an inside look at today's topic of preparing business owners for the most important transition of their lives, this podcast is for you. And if you want to dive deeper into these topics and equip yourself with practical tools, visit aicpa.org PfP AICPA members can join the PfP section for $2.69 per year to access a full library of of resources designed to support you in delivering exceptional financial planning. Dan, thanks for being on the show with us. Let's start with laying the business exit planning groundwork. Now, this may seem kind of obvious, and so I'm sorry right up front, but what exactly does it mean to quote exit your business?
- [02:23]
B
Thank you Carrie, and having me on the PFP podcast today. I certainly enjoy being a subscriber to this podcast and listening to all the great insights from our fellow PFP colleagues. So I really appreciate the opportunity to participate this time around and join the conversation. When we talk about exiting a business, you know, I often see a lot of owners and stakeholders tend to picture it as a single isolated event, whether that's a sale or just the handoff, etc. But in reality, exiting is really more of a process than an event. I like to think of it as the transition of ownership, leadership, and the value that an owner has created over time into something that serves them personally Moving forward. What's important to understand is that an exit doesn't always mean retirement or disappearing from the business. It could mean stepping back strategically freeing themselves from a 60 hour work week, but maybe still playing a role, a board member, mentor of the new leadership team, or a consultant. Other owners may want to take a clean break and to travel the world, but really the exit is really about creating choices for the owner. And without planning, those choices can become limited rather quickly.
- [03:40]
A
Well, that makes a lot of sense. Choices sound amazing. Everybody wants that, especially when you're thinking about your future. When owners think about exiting their business, what are the biggest risks they tend to overlook, Whether it's financial or legal or perhaps operational. How can identifying these risks early, essentially is what you're talking about, fundamentally change both the trajectory and maybe the ultimate value of their exit?
- [04:10]
B
Early is definitely the key word there. I see that when most owners think about risk, oftentimes they tend to gravitate to the negotiation of the sales price or, you know, is the buyer willing to pay what I want? And that certainly matters. But the real risk that I see often comes from within, inside the business. And there are things that owners don't often realize until they're potentially sitting at sitting in due diligence at the closing table and a buyer says, hold on a second, we have a problem here. I want to look at this operationally. It's clear to me the biggest blind spot that owners often fall into is the business is just too dependent on the owner. The owner has built the business from the ground up, right? They may know every client personally, I've seen that before. They may make all the key decisions. Maybe they're the only one who really understands how certain internal processes work. I imagine that may sound familiar to you, Carrie, and most of the other listeners here today. If the business can't run smoothly without the owner involved, buyers will see it as a risky investment. I've seen situations where the owner may be the rainmaker, they may be the decision maker and manage most of the relationships. Reluctant to start to delegate some of that to a successor manager or others in the business. And that dependency can certainly slash some value or worse, sometimes derail the deal. How can an owner fix that? Well, I think the owner can start delegating as much as possible as early as possible and have a plan around that make the owner replaceable. It can sound counterintuitive at times, but it can actually make the business way more valuable. Buyers want transferable value. And that term, I look at that, hey, what is a company worth to somebody else without the owner involved? And transferable value can be a prime Determinant of the success for an owner's exit. Financially, we've seen this before the business, the revenue stream is dependent on 1, 2, 3 customers. It's highly concentrated. That may not feel like a risk day to day, but to a buyer it can be a red flag. Maybe the books aren't clean. I've seen situations where personal expenses are mixed into the business financials. The documentation can be a little messy and suddenly earnings aren't as strong as expected and valuations could drop. As a legally, risks show up from outdated shareholders agreements. That's one thing I struggled with with some owner clients trying to get those updated. Let's dive back into this handshake deals instead of clear contracts. I've definitely seen a few of those. Oh, well, you know, we've agreed to that. Well, let me see the document, Let me see the contract. Intellectual property may not be properly registered. These are the kind of headaches that can stop their legal team cold. Hire the lawyers, hire the advisors and get everything cleaned up. Yes, it's going to cost some money, but it's likely going to be cheaper than having a deal collapse because of something that could have been fixed ahead of time. What's powerful about identifying these risks is the owner's buying time to fix them. They can systemize operations, clean up financial reporting, diversify the revenue, update contracts, and really transition relationships is key. These steps taken years before. An exit doesn't just protect the value and all the value that they've worked so hard to grow, but it also will often lift it moving forward. The deals tend to move faster when a lot of this stuff's cleaned up. Negotiations can lean more in the owner's favor now. And prospective buyers will often view the company with lower risk and a higher reward. So, Carrie, I think here's what it comes down to. The owners get the best exits when they start early and they identify these risks. We've all heard this, right? They're not just building a more profitable business, they're building a more sellable business. When the owner addresses these risks early, amazing things can happen. And lastly, as most know, the owner gets higher offers because really all this stuff, if it's in, in order, buyers are more confident. And when they're more confident, the due diligence process goes a lot smoother because there's fewer surprises.
- [08:28]
A
Avoiding the blind spots and in order to have transferable value, is that the amount that the business owner needs. That makes a ton of sense. But I gotta say, most business owners probably feel they have a good handle on things. It's their business. So many business owners believe that they can manage their exit largely on their own. Why is building the right advisory team so critical? And how does having CPAs, attorneys and other specialists working together elevate both the quality and the outcome of the transition? And also how do you let the business owner know that the money is going to be worth it to do that?
- [09:13]
B
A lot of owners take pride in doing things on their own in the business, sometimes out of the business. You know, they built their business that way. They wear a lot of hats at times and they assume exit planning is just another project to go ahead and manage. They're sitting there thinking, hey, I've been running this company 10, 15, 20 years. I've negotiated tough deals, I've made big decisions, I've handled a lot of crises. Why do I need this whole team of advisors to help me sell the business? Well, as you know, Carrie, the challenges in exit involves several moving pieces, right? I mean we've talking tax law, deal structures, state planning, contracts, wealth strategy, valuation. That's virtually impossible for any single advisor, let alone an owner to manage and cover all the bases. But maybe the most important thing a strong advisory team does is make sure that whole process aligns with what actually matters to the owner personally. Because here's the truth. Not every exit is about maximizing the sale price. I'm sure advisors out there, several advisers have, have worked with owners where they may have gotten the locked in the highest offer. But post Exit there were some, some regrets or things that weren't thought about. Certain value driven goals. Good advisors don't just again try to get the highest price. They help get the right deal based on the owner's personal goals and priorities. Let's think of it like it's a championship team. On any sport. You don't win with just a pitcher or a quarterback or a goalie. You win because every position is covered by a specialist.
- [10:45]
A
I don't know, Dan, I, I live in Kansas City and Patrick Mahomes is pretty awesome. But I get what you're saying. Even the highest superstar, he can't throw it to himself most times.
- [10:58]
B
That's correct. You know, you need a Travis Kelce out there to catch a few touchdowns, but yes. And you know, in exit planning, whether it's the, you know, the CPA, minimizing taxes and documenting the clean financials, you've got the attorney drafting hopefully airtight agreements and handling the liability aspect of some of the, some of the exit and really protecting the owner's interest. At closing, you know, you got the financial planners really analyzing the owner's personal wealth plan pre and post exit, maybe outlining some estate planning goals and really helping maximize, maximize the retirement income that will benefit the owner and the owner's family. Post exit, what else do we, you know, valuation expert or an M and a advisor may be helping position the business for top dollar and negotiating those deal terms. These are just a few of the specialists, but give you a sense of how these key roles can come together. And I think the key is it's great to identify and get all these advisors individually involved, but the point is to make sure that they're working together. I think misalignment of the team. I've seen this a lot where hey, you've got the best attorney, the best cp, all these great people. But the communication, the collaboration isn't where it needs to be and that can again be costly and, but when a team can actively talk across specialties gaps close, some of the tax drag is minimized and the transition overall is just stronger, whether that be legally, personally or financially. And I think, you know, one other thing Carrie, I think is really important beyond all the technical stuff that I've personally seen a few times is the emotional support and objectivity these advisors can provide to owners. It sometimes feels like this advisor team becomes a buffer between the owner and all the emotion that's involved. They keep, you know, they tend to keep negotiations professional when, when an owner's emotions, you know, in the room could, could take it a different way. They help truly help an owner see the big picture. Don't get caught up in maybe some of the minor things like let's, let's keep our eyes on the prize and keep the main thing, the main thing oftentimes through the collection of the team. There's some that have, have seasoned experience and they have been through this enough times where they know when to push back or when to compromise at times. Look, I know that it, it can be expensive and, and my, and people feel a certain way about spending a lot of money on advisors, especially business owners. Right. But here's how I like to think about it. We've heard this term before and you've probably used this line that hey, business owner, this is the single largest financial transaction of your life. This one time cost of building this great team is nothing compared to what it could cost if things go dramatically wrong. A strong professional advisor team can often turn a stressful, risky gamble into more of a strategic, well coordinated process. My last point really boils down to the team protects the value an owner spent years building. They help avoid costly mistakes and they help enhance an owner's peace of mind with whatever comes next. Post Exit yeah, I definitely hear that.
- [14:14]
A
And especially business owners who started their company in the garage or just even bought it from somebody. It's usually 10, 20, sometimes 30 years of work that they've put into it. It's hard not to be emotionally attached to what you've built. So here's a question for you. Often business owners delay the exit planning because it feels so far away from your experience. What difference does it make when an owner begins a proactive conversation years in advance, both for increasing the valuation of the business, but also for reducing kind of what you were talking about, the owner's personal stress and and uncertainty.
- [15:01]
B
Let's be real why people put this off. It's. It's not just that the exit planning feels so far away though that's definitely a part of it. We everyone likes to procrastinate here and there. It's also because thinking about leaving this business can be really, really emotional. But here, here's what I've learned. Car. I think the ones who start early don't just get better outcomes. A lot of times the owners actually end up loving their businesses more, not, not less. And because when the owner starts planning the exit, what they're really doing is planning how to build the most strong, most valuable version of their company possible. Let's say you're selling a house instead of trying to slap some paint on the walls right before you put the house on the market. If you have time, you get to do some real renovations, some exciting renovations that will fundamentally increase the value of that home, similar to a business. Everyone knows this. But the best results come when an owner gives him or herself at least 2, 3, 4, 5 years, if not more. Right? With the gift of time, the owner can materially change the narrative on a lot of key aspects that buyers are seeking in a purchase. Clean financials, diversified revenue base, strong culture, etc. Time also allows in order to build good management leadership depth. But building that team, as we know, doesn't happen overnight either. It takes time. We got to hire the right people, train shifting responsibilities gradually among the team to get the right people in the right seats. Just as importantly, time in a lot of the role that I've played in a lot of this with business owners, it gives us the chance to design effective and tailored wealth, tax and estate planning strategies. Sometimes if an owner sells too quickly or not kind of hey, hold on a second. Let's. Let's think through this. If you're afforded the time to do so, they may be stuck with taxes that could have been minimized earlier through more advanced planning. Whether that's through the use of trust, charitable structures, gifting strategies, or retirement plan maximization. These take time to implement and should be done ahead of time on a personal level. Like anything, if you do things early, you feel more prepared. You reduce stress and fear, especially with something unknown to an exit. For a lot of these owners, it's their first and only time. Owners who plan late often exit reactively because of emergencies, health issues, or just burnout, and can do so under poor terms. The ones who plan early feel in control and that's key. They know the business, they know what it's worth, they know their personal financial plan works post exit, which is very important, and they have options. It shifts the process from being stressful and reactive and sometimes chaotic to one of confidence and choice, which we mentioned earlier. Confidence and choice, those are two keywords to file away. The point is the owner gets to be intentional, which we all want to be around pivotal moments in our life. Be intentional and not just hope it works out. I'll give you a quick example. I worked with a small manufacturing company owner who realized which a lot of owners, you know, smaller firms, that his business was basically him and a bunch of employees. It to me seemed like every decision or every relationship flowed through him. But because there were some basic owner centric conversations had years before the planned exit, the advisor team had some time to really fix some of this. We weren't creating some master exit plan with timelines, but rather honestly just doing some good business planning, hitting a bunch of singles to eventually score some runs. Nothing groundbreaking here, Carrie, but we helped the owners systematically delegate responsibilities, document critical processes, build up the management team, and then gradually transfer some of those key relationships to others. What do you know? By the time he went to market, buyers saw a business that could run without him. And what did the buyers do? They they paid a premium for that stability. To conclude the bottom line is that early conversations don't tie the owner to a timeline. They simply give the owner more leverage and control moving forward. I'm going to state something really obvious here, but the earlier the start, the more exit options, the likely a higher value and the more peace of mind you're likely to lock in for the owner. Peace of mind. I always mentioned that to a lot of my clients, especially when I practice law is hey, at the end of the Day, we're going to sign all these documents. But if you don't have peace of mind and something was not done correctly throughout that process. So that's the goal. Peace of mind.
- [19:32]
A
Peace of mind is what it's about. If you can't get that through a process and you're exiting the very thing that you've worked on for decades going into, for some people, a big question mark that is so important and so to be able to do it with confidence and choices, you pointed out, makes so much sense. And business owners, they often have multiple exit paths available, whether it's third party sales or management buyout. Obviously the more time you have, the more options you can have. You can include family succession rather than just okay, I'm going to wind down my business. Dan what guiding principles should advisors use to help owners choose the particular strategy that best aligns with their goals and their values and their legacy?
- [20:22]
B
Yeah, you know Carrie, I've seen where owners often just assume the only option, hey, my option is to sell to the the buyer that offers the most money and kind of puts the blinders on some of the other things that should be considered. The truth is there are multiple pathways to a good exit. We all know that. And the best one really depends on more than just the price. I think a good, you know, some good guiding principles advisors could use to help owners kind of frame the decision. Boil down to financial needs, personal values and desired role post exit. Financial needs. How much does the owner actually need after taxes to fund their lifestyle and at what level of security or confidence? This isn't about the sale price alone, it's about the net proceeds an owner keeps after the taxes come into play and how these net proceeds support an owner's long term retirement and family. Detailed wealth planning is very crucial and should be done well in advance of an exit. If you don't hit that goal, you can't deem it a successful exit in the end. Second is personal values. We know owners care about a variety of things. Some care about legacy, protecting jobs, rewarding loyal employees or managers, keeping the company name on the building or passing it to the next generation. Others, you know, may be focused more on liquidity and maximizing wealth. Both are valid, of course, Gary. But the choice of path will play out differently depending on those identified values. Third owner's desired role post exit does the owner want a clean break from the business, essentially retiring completely, or is the owner open to staying on, as I mentioned earlier, as a consultant for the management team or the CEO or in some capacity or some sort of phase transition. I'll give you two examples here to highlight the difference. A private equity group might pay top dollar but require an owner to stick around for two to three years. Is that the exit that they envisioned initially? Maybe not. A family succession oftentimes will give an owner more peace of mind, but from the financial aspect, there's likely going to be less cash received up front. By walking owners through these three factors, financial needs, personal values, and owner's role after exit, you can help an owner pinpoint the exact path that truly fits and aligns. And lastly, the right choice is again, not just the sales price. I want to emphasize that it's really about aligning the exit path with an owner's bigger goals and values.
- [23:10]
A
Dan, I love how you said the first most important thing that you need to figure out is how much does the business owner need? What are their financial needs once they're out of the business? Because that really shows how valuable how crucial financial planning is on the front end. Even before you start the business exit process is to go okay. Personally, as a business owner, how much do I need to fund my retirement? And for the financial planners out there, they are core to having the business owner's best interest in mind. So many business owners, they are focused on running the day to day and the idea eventually exiting feels distant. And so from a financial planner's perspective, what's the best way to start that first conversation about exit planning? We're fantastic at talking about all right, here's your financial needs. Here's what it'll look like for retirement. How do we start the conversation about exiting your business without overwhelming the owner, but in a way that gets them engaged early?
- [24:23]
B
You're spot on there, Carrie. Getting that owner engagement early is key, but we all know can be very difficult at times for many owners. Again, similar to some of the other comments made today, is is talking about an exit is truly uncomfortable thinking about it talking about it. Like you said, they're busy running the business, they don't feel ready to think about life afterwards, or they equate planning with selling tomorrow. And that's why the way you start the conversation matters so much. You know, if you jump into topics from taxes, valuations, legal structures, blah blah blah, you'll most certainly overwhelm the average owner, if not all owners. The best way to start? Well, Carrie, make it simple, make it painless. Instead of asking when do you want to sell? I often try to, you know, use a few questions along the lines of hey, owner, if something Unexpected happened tomorrow. Would your family and business be protected? On a scale of 1 to 10, how prepared do you feel if you got an unsolicited offer tomorrow? What is your vision for the company without you? Wow. Wow.
- [25:33]
A
I love that question. It's, that's a hard one to ask, but I love it.
- [25:38]
B
And then I have a file. Hey, what is your vision for you without the company? Even better, you know, better yet, there have been times where I've used what oftentimes referred to as like an owner readiness assessment or company performance checkup. These are short kind of non invasive exercises. Could just be a 20 question survey, but with some really specific thought provoking questions that give the owner really a diagnostic report. It highlights areas that are strong and areas that might need attention. I think owners like these. Again, they're non invasive, they're very innocent and they like them because it feels like a scorecard, not, not a sales pitch. You're not pushing them. Do any planning. Let's just, let's just do this exercise and it really starts a meaningful dialogue in a more natural manner. Once an owner sometimes sees these results, the conversation can shift a bit and, and it's not about again, pushing them to plan. It's really about them recognizing some gaps and asking, hey, what, what do I do next year? I feel that's the most natural way to begin exit planning by planting the idea gently giving them insights into their business and then letting them take the next step with confidence. You can also use timing cues. End of a fiscal year, maybe a milestone birthday, hey, maybe a competitor or a friend recently sold their business. That's like a natural moment to say, hey, have you thought about what the transition might look like when the time is right? I've had clients initially say I'm nowhere near ready to sell. Let's get back to what's the most important to me. But then if we frame it in a way that's meaningful to them and it can truly resonate with them, you start to see owners start to lean into that conversation a bit more and it becomes less about giving something up and more about preserving choice and control. Again, Carrie, this is not to flood them with details on valuations and taxes, contracts all up front. It's really planting the thought that planning is a way for them to gain more control and not lose it. Once that door starts to open, it becomes much easier to move into those deeper conversations about timelines and goals and strategies. And my last comment, Carrie, is that often once owners start imagining their future on their own terms, they're far more engaged in that process.
- [28:02]
A
Moving forward, I especially can't wait to hear stories from financial planners who ask the question, what's the vision of your life without your business? So send me an email@financial planningicpa.org and let me know how you tried out Dan's question and how it worked. Dan, thank you for sharing with our community of listeners. So appreciate it. If you're an advisor who wants to deliver premier financial planning with confidence, explore everything the AICPA PFP Section has to offer@aicpa.orgpfp For 269 a year, AICPA members get access to a library of technical guidance, webcasts, planning tools, and expert insights like Dan's, all designed to help you serve your clients at the highest level. And coming up, PFP Section members get free access to CPE webcasts like Business Exit Planning. So that's coming up on September 17, 2025 at noon Eastern, where Dan and two other planning experts are going to dive deeper into the details of how you can get started in Business Exit Planning. If you're a CPA with 3,000 hours of planning experience already, consider showing your expertise next to your name by obtaining the PFS credential@aicpa.org PFS this is our podcast together, and if this episode helped you in your practice, we'd be so grateful if you shared it with your professional community. With almost half a million downloads so far, the AICPA PFP podcast is helping elevate the profession one listener at a time. This has been Kari Sinnott for the AICPA Personal Financial Planning Division. Thanks for listening and until next time, keep earning trust through clarity, guiding with compassion, and delivering premier planning that elevates our profession.
- [30:09]
C
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