Planning an Exit in Volatile Times

by Suzie Eyrich 

Succession planning comes down to one question: “How do you want to exit?”

The reality is all business owners will eventually exit their business. Whether they retire to the beach, sell their company and move on to another venture or for health reasons can no longer be a part of the day-to-day operations, they need a plan that financially prepares them for the next phase of their lives while supporting a continued vision for the company. A successful exit plan creates a business model that is transferrable and lays the foundation for a seamless transition for the owner and employees. Yet, what happens to these plans when thrust into unexpected, volatile times? 

When Uncertainty Strikes

Under normal circumstances, succession planning often is a straightforward, though detailed, exercise in long-term goal-setting and strategy. This process involves the owners casting a clear vision for their future, creating a specific timeline to reach their goals, aligning business operations to support this vision and assembling a team of professionals to guide the plan and ensure it is executed successfully.

However, when times are uncertain, emotions often get the better of us and can severely limit our ability to plan. Fear, particularly of the unknown in the current environment, often is a business owner’s greatest deterrent when it comes to planning for the future. The need to pivot focus toward short-term and immediate business needs to ensure it can emerge stronger during volatile periods can make it difficult to have necessary conversations surrounding succession planning and longer-term exit strategy. 

This has played out during the current crisis. With the ongoing pandemic and economic impacts of COVID-19, many business owners have either hit pause on their existing succession plans or delayed the process around them in favor of focusing on immediate needs.

Certainly, these reactions are understandable — especially considering the drastic effects of the present crisis. When revenue evaporates and a business must suddenly close or evolve — as has happened to thousands of businesses during the pandemic — zeroing in on short-term needs is a matter of survival. 

Balancing Short and Long Term

Still, even in times of volatility, business owners should not completely abandon all focus on the long term. In fact, such circumstances can underscore the importance of having a strong plan in place.

The good news is the basic tenets of succession planning — asking questions, setting clear goals, assembling a good team of advisors, etc. — remain the same even when uncertainty and volatility strike.

The key, then, is to find a balance between ensuring the business’s short-term needs are met during times of uncertainty and maintaining a focus on long-term direction.

Direction Matters

Part of maintaining that balance lies in accepting that things are different, and that previous expectations, timelines and goals may have to change.

For example, an owner who planned to sell her company and retire in the next few years must now consider if that goal is still feasible. What does the market value of the business look like today? Has the valuation been depressed? Is the owner willing to adjust her expectations and long-term goals to accept a lower price for a sale? Is the owner willing to hold off for another year or two? The answers to these questions are fundamental in determining the direction of the business and providing insight into any potential contingency plans that may need to be developed.

This illustrates the importance of having a plan in the first place. Operating without one will create additional anxiety and fear, whereas having a clear vision provides an initial point of direction that can be recalibrated or changed if needed. 

So where to start? The first step is to get clear about personal and business goals. Then work with a valuation expert to value the business in the current environment and understand the variables that impact that value. Finally, work with a wealth planner and exit specialist to implement strategies to support the growth or sustainability of the business value that will ultimately secure the owner’s personal financial future. 

Ultimately, plans can and may change over time as unforeseen circumstances arise, but business owners must have a direction to succeed.  

Suzie Eyrich is a senior wealth planner with BMO Wealth Management. She provides customized wealth planning solutions to high-net-worth individuals and families, assisting them with tax planning, business succession, asset protection and financial management strategies. Eyrich has more than 13 years of experience in the financial services industry. 

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