Podcast: Why Don’t Business Owners Embrace Exit Planning?

By Noah Rosenfarb
Published: October 6, 2014 | Last updated: December 5, 2017
Key Takeaways

“Just because you have a business that produces a lot of income, doesn’t necessarily mean you have a business that is transferable or has any value.”


In this podcast, Chiris Snider, CEO of the Exit Planning Institute, talks about:

  • Why exit planning is considered a “blue ocean market”;
  • The importance of setting goals and teamwork in business exit planning;
  • Emotional aspects of selling a business;
  • The current state of exit planning and where it is headed; and
  • The real meaning of the word, “exit,” and why it is important to your business.

About the Guest

Christopher Snider, CEPA is CEO and president of the Exit Planning Institute, the premier international membership organization serving the educational and resource needs of the exit planning profession. Formed in 2005 to bring together M&A advisors, CPAs, financial advisors, attorneys, management consultants, business brokers, and other business advisors, the Exit Planning Institute’s members, including some of the most highly recognized leaders in the industry, draw upon their combined expertise to better serve the needs of small and mid-sized business owners worldwide. The common thread uniting these different professionals is their commitment to helping clients exit their companies successfully.


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Read the Full Transcript Here:

Noah Rosenfarb: Hello everyone and welcome. It’s your host, Noah Rosenfarb, the author of Exit: Healthy Wealthy and Wise and founder of Freedom Business Advisors, today with our guest, Chris Snider, who is the president and CEO of the Exit Planning Institute. Chris also has a private practice called the Aspire Management, so he practices what he preaches. He came on the show today because EPI is hosting a conference, their annual conference in Fort Worth, Texas, September 30 through October 2, 2014. We’d like to make sure all of you are aware of that and tell you a little bit about it. So Chris, thanks so much for joining us today on the show.


Chris Snider:
Thank you, Noah. Glad to be here.

Noah Rosenfarb: Yeah. So you and I had a chance to chat a little bit before we got on the air here and you were telling me about this upcoming conference. One of the things that I thought was interesting is this concept of the Blue Ocean Strategy and one of the keynote speakers you have. Maybe you could just talk to us a little bit about how exit planning is a Blue Ocean and what does that mean for all of us listening, whether we’re owners or advisors to owners?

Chris Snider: Right, that term comes from a book, it had been out probably 10 years now called Blue Ocean Strategy. I’d highly recommend it if the listeners haven’t read that book. It really is, I think, one of the top strategy books that I’ve ever read. One of our keynotes is Chuck Hollander, who is one of only 12 Blue Ocean instructors around the country and one of the reasons we asked Chuck to be the keynote is a Blue Ocean is basically a new market, a market that has not been created yet versus, say, a Red Ocean, which is an existing market with existing competitors. They have specific factors and they know how to compete. In the Blue Ocean, when you’re operating in a Blue Ocean, you’re creating the competitive factors as you go along and I feel like the exit strategy market is one of those markets.

Noah Rosenfarb: How come? People have been figuring out business succession for years and years. How is this a Blue Ocean? Why are we calling it something different and what is it that’s new?

Chris Snider: Well for one, the market is extremely emerging right now. You have two-thirds of privately held businesses owned by baby boomers, the youngest of which is 50 now, the oldest is 68. A survey that EPI underwrote last year for business owners, 76% of those owners that were surveyed indicated they wanted to transition their businesses in the next 10 years, 48% in the next 5 years, others roughly 6 million businesses with payroll. So that equates to about 4.5 million businesses transitioning in the next 10 years, so just the sheer size of the market and the number of businesses that are going to come to market and the fragmentation about how to approach a successful transition, that’s what leads us to call it a Blue Ocean.

Noah Rosenfarb: What else is going to be going on at the conference? You mentioned you have a great closing keynote speaker as well.

Chris Snider: Yeah. I’m really excited about that. We have Admiral Ray Smith who was commander of the Navy Seals for, I’m sure how many years but maybe 10, 20 years, and he is going to close out the conference with talking to us about team work and collaboration. So that EPI, there are a couple of, you know, core principles that we teach. One is for an exit plan to be successful, you have to make sure that all three – your personal goals, your business goals, and your financial goals – are all aligned. That was one of the things that was really striking for me when I first got involved with EPI, and it’s a key principle for EPI.

The other one is working with a team. You have to have a successful team in order to exit successfully, and what we find is that a lot of the advisors are not working as a team. They are opposing the owners individually with their own plans and their own way of doing things. It’s one of the biggest complaints that I get from owners is that advisors are not working as a team. So it’s something that we teach in our CEPA Program. It’s something obviously we wanted to have somebody like Admiral Smith talk to us about.

Noah Rosenfarb: Take me back in time and describe to me how did you get interested and ultimately become the CEO of EPI. Take me back to your days as an executive.

Chris Snider: Yeah, I started out as a, you know, I eventually became a corporate executive. I started out in the corporate world, worked in various executive positions for probably almost 20 years, and I had a chance to join at one point a middle market company that at that time was doing about $90 million. That was small for me at that time and I had a chance to join that company. It was a privately held family business, second generation, and having the chance to work in that business really taught me what it was like to work in a family oriented business. That business we took from $90 million to $260 million in three years and fell to a multinational, But going through that three-year process with Andy Rayburn who was the owner, really showed me how to do it right because we obviously grew the business pretty successfully and we sold it at an extremely high multiple.

From there, I was back in the big corporate world and I couldn’t handle it. Once I was back in the corporate world, once I had the taste for the middle market family business, I couldn’t get enough of that so I ended up leaving, running a couple of small companies, and then eventually launched my own practice, Aspire Management, which is really geared around driving value into businesses and growing businesses, and that naturally led to buy side engagements and ultimately to selling businesses to extract and harvest that value.

What I found is as we were going through that process, representing owners, that when we were getting towards the end of the deal to a lot of advisors, it seems it’s forced. The owners started acting irrational towards the end of the deal and I couldn’t figure out what was going on because financially, we were delivering wonderful value but I realized that there’s the psychological and emotional side and how important that was to actually getting the deal done.

When I ran into EPI and the three principles – personal, financial, and business goals – being aligned, it sort of like the light bulb went off and I said, “Okay, there’s a whole side of this that I’m missing. I can’t just focus on the business. I need to focus on the personal side and the owner’s personal and financial security post sale,” and so that’s when I went out and got certified through EPI in 2008. So I was a member of EPI for four years before I actually acquired it and became president in 2012.

Noah Rosenfarb: That’s great. If you could walk me through a story of how you’ve implemented either the EPI process or however you have amended it for your own use or for a particular situation, but describe a success story that you had. You had Aspire working with a client and what was the before and after look like?

Chris Snider: Yeah, I can tell you again from a practitioner standpoint that post CEPA, going through the certification course transformed my business. What happened is I used to lead with basically growth consulting or sell side work, and when we came back, we reengineered the firm to really lead with value and growth, and putting up a process that EPI teaches today, which I call the triggering event that allows us to get owners moving on these processes and paying us anywhere from $5,000-$10,000 a month to not just help them with the transition but to grow their business, to add value to their business.

A lot of it is really just advocating owners on how value is derived in the market place or if they are smart people, they will figure it out. It’s just that they are not educated about the way the market value businesses. So we implemented it, tie to this a year or so to get the EPI processes integrated into our practice, and how what happens is we lead with exit strategy work, we lead with an assessment and evaluation of the business which typically leads to opportunities to drive growth and value of the business. Once the owner sees what the potential is, they are usually ready to move forward and engage in the process.

Noah Rosenfarb: Peter was a guest on the show, Peter Christman, a long time ago, one of our original guests. What led to you and he interacting and coming to a conclusion that you’d be EPI’s best owner?

Chris Snider: Yeah I can’t say enough about Peter Christman. Peter Christman is one of those guys that was way ahead of his time. In fact, I talked to him this morning and he was talking about this stuff back in the early 90s. It was like 20, 25 years ago. That’s how visionary he was. Peter took me under his wing and he has really taught me a lot. My partner and I when we were getting to launch our practice, I encourage our members to do this as well, is we would call up Pete. We would travel to Chicago at least once a month to just sit down and meet with Pete and ask him for help, ask him for suggestions, and you know, literally Noah, I would come back and implement what he suggest that I do, and it works. You know what I mean? The idea, the chapters, we created a chapter in Northeast Ohio. The idea of the chapters was his idea. The idea of the awareness of the events was his idea. He’s just a brilliant guy and I’m lucky to have him around that I was able to tap into his knowledge and then come back and basically just do what he would suggest that we do.

Noah Rosenfarb: So you took over EPI how long ago?

Chris Snider: The end of 2012 so really, 2013. Last year was our first full year with me at the helm of EPI and some of the things that, and because I was a practitioner, there were a number of things that we immediately wanted to do. My son, Scott, and I, you know, Scott is involved in the business. By the way, we do really practice what we preach because we’re in a family business ourselves. EPI is a family business and there are a couple of things that we wanted to implement right way. One was this conference. One of the things that I saw is that as a member, you would go for CEPA and then you really wouldn’t see anybody again because EPI hadn’t created any events where the members could get together and I just think if you’re going to have a community, and it’s important to have a community when you’re creating a market, you need to at least once a year where you can get the members together.

So one of the first things we want to do is create a conference where all the members could convene, top advisors who are not members could come in and kind of get a glimpse of what we’re doing at EPI. It’s a very educational oriented event because I think what happens is we’re really lacking in education. We held really the first conference in Cleveland last year, which is where we had our first chapter, and our second chapter is in North Texas. That’s why we’re having that in Fort Worth this year.

The other thing we did is we want to create a chapter network. The idea that the strategic framework that we put together for EPI and the CEPA is based on is a great framework but in order for things for it to really take root, it has to be implemented at the community level, in the local communities. It’s a great idea but how you apply it in Cleveland, Ohio versus Dallas versus San Francisco versus Chicago might be a little bit different because each of those communities is unique. They have unique owners, unique cultures. So the idea is take that framework, bring it into the local community, and try to build this awareness up from a grassroots level. Now we have, I think, seven or eight chapters across the country, New York, Chicago, Dallas, Cleveland, San Francisco, and in a couple weeks, we’re getting ready to launch in Orange County and Las Vegas. We also have a chapter in Sydney, Australia.

Noah Rosenfarb: That’s great. Congratulations on the growth. Where do you see the future going for the industry as a whole? There are some other institutions that are accrediting professionals to help clients with the transition of their business. Where do you see the industry evolving towards?

Chris Snider: Again what we’re going to see is that today, you know, as many of the listeners might know, multiples are at their highest level, as in some cases, in history. There are about a trillion dollars on the sidelines with what you hear and investors are looking for places and looking for businesses to buy. That is not going to last. Just think about all markets move in cycles. What’s going to happen is we’re going to say, we project that there are going to be a ton of businesses that will be coming to market upwards of 4.5 million in the next 10 years. As those businesses start to come to market, you’re going to see an oversupply and what’s going to happen is the multiples and the values will start coming down to simply supply and demand.

Only those businesses that are the most prepared that are the “cream of the crop” so to speak, are the ones that are going to be able to successfully transition or be acquired, and the others will fall by the wayside. Right now, it’s actually a pretty good time for an owner to be exiting if they are ready to exit and in the next five years, if you’re not ready to exit in the next 5-10 years, you need to be thinking about how you’re going to drive value to the business so that it’s going to be one of those businesses that will successfully transition in the next 5-10 years. We’re going to see a term that is used as a tsunami of businesses coming to market in the next 5-10 years.

Noah Rosenfarb: You and I kind of talked again before the call about what the numbers could look like if we’re unsuccessful at educating the market place on the value of exit planning and then perhaps what the numbers could look like if we are successful. Why don’t you walk our listeners through kind of those demographics? You mentioned 4.5 million businesses that are likely to transition in the next decade, how many are going to raise their hand to ask for help?

Chris Snider: Yeah, that’s a great question because this is where the paradigm, this is where the shift needs to occur, and this is really what EPI is really on a mission to change. So today, we have, let’s say, the market is 4.5 million but statistically, only one out of 10 owners actually does anything proactive prior to their transition. That means that only 450,000 out of those 4.5 million do anything proactive and so there’s a whole lot of businesses where owners are not being proactive and there are a lot of those businesses that, you know, will not successfully transition.

The statistics today are, some of the things that we talk about when we go around the country, 75% of owners who sell their businesses profoundly regret selling it a year after they sell it. You have a transition success rate, of only about 20%-30% of the businesses that go to market actually sell. Family Firm Institute has a study, only 30% of family businesses survive through the second generation. When you get to the third generation, you’re down somewhere around 10%-12%. So the success rate of the probability of you being able to transition your business is, at best, about 20%-30%. That’s terrible if you think about that. So what’s happening to those other 70%-80% of those businesses? They are getting dissolved and that wealth is being lost.

What we’re saying is, it’s not just the economic problem, it’s a social problem because you have employees that are dependent on that business ongoing, you have vendors that are dependent on that business, and you have communities. From an economic development standpoint, you have communities that are dependent on those businesses being sustainable and successful on an ongoing basis. What we need to do is change that statistic and that’s where the advisor comes in, and that’s where we’re on a mission to build an organization and an advisor that can really change the outcome for owners and their families.

What I tell people is it’s not overwhelming objective. All we have to do is go from one out of ten to two out of ten, but we just go to get two out of ten owners doing something proactively, we’ve doubled our market for when you just stop and think about if you’re an attorney or financial planner or a CPA, imagine double the business. If you just get one more out of ten owners, you’ve doubled your business. That would be huge to do just alone, but even if we did that, we’re only at two, but it’s going to be a lot easier to get to four if we get to two, and it would be a lot easier to get to seven if we get to four. So the objective is let’s just get to two first. Don’t try to change the world overnight. Let’s just get to two. What we challenge our advisors to do is go back to your list. If you talked to 10 owners, you got rejected nine times, go to those nine that rejected you. There has got to be one out of those nine that you can get converted if you educated them better.

Noah Rosenfarb: Yeah, no doubt. You know, we have, I guess, a reference point that we use often with owners is that this type of stuff is really important. It just has no deadline and so when we’re looking at things that are important but not urgent, it’s always hard to motivate an owner to make progress because they are fighting fires in that important and/or urgent box. What are some of the things that you train members to do to enhance the sense of urgency with owners around this planning?

Chris Snider: That’s a really great question and it’s something I’m often asked. You know it seems like it’s an obvious thing, why aren’t owners, more owners, doing this if it’s so obvious? Well one is that they are just not educated about it. Two is like you said, it’s not urgent. It’s important but it’s not urgent and as an owner, you’ve got a lot of urgent things to deal with every day and so this is something that you just don’t get to. So that’s how you change it. You’ve got to make this exit strategy work part of the way you run your business, but what we teach is, we basically teach the management system.

Stop thinking of exit planning as something I’m going to do because there’s going to be an event five years from now or 10 years from now or a year from now, and instead, run your business so it is always prepared to transition. So when you think about the things that you would do to implement a business that is operating on best practices, let’s say, or let’s say you are looking at developing your business strategy, what are the kinds of things that you would address on a business strategy. You’re going to want solid marketing. You’re going to want a strong management team. You don’t want the business to be dependent on you as an owner. You’re going to want a diversified customer base. The same thing that you would do to develop a best practice business is the same things you need to do to develop a business that’s transitionable.

What we try to teach is don’t treat it as something separate, integrate it into the way that you operate your business every day, and that is not an issue. All owners should be doing things to diversify the risk and mitigate the risk. It’s not exit issue, that’s a business issue. All owners should be doing things to grow their business and add value. It’s not an exit thing, that’s just a business thing. But if you look at it as, “This is the way I should be running my business” then the whole thing about doing some of the event down the road just goes away.

Noah Rosenfarb: So one of the challenges I have with our field in general and my book is called The Exit: Healthy, Wealthy and Wise, but I think “exit” is a terrible word for the type of planning we do and I think when we get to nomenclature agreed upon in the field and welcomed by the owners, it’s going to be a challenge to go from one to two and two to four and four to seven. But yet, there is no word that they want because at least in my experience if I ask 100 owners, “When do you plan to exit your business?” 48% of them might say within five years and 70% of them might say within 10, but none of them are ready to exit now.

Chris Snider: Right, I know.

Noah Rosenfarb: It’s one in a 100 that is ready to exit now. There are things they might be willing to do now because they know it’s coming but usually, it has come back to me in two years. Where do you think that conversation going to go and you kind of have a brand in EPI that has been around a long time? I think the community at large of advisors has latched on to the word “exit” but where do you see that going and where do you see the resistance being from owners?

Chris Snider: A couple of things, first of all, we get to question about the word “exit” comes up a lot, like, “Oh, you know, we don’t like that word. Don’t use that word with owners” and I challenge people that say that. I know my own practice. The word “exit” never stopped me from getting an engagement with an owner. That has never stopped me. What happens is, if I get an owner that is pushing back and saying, “I don’t like exit. I don’t like to talk about that,” what you have to do is get past the word. It’s not the word that makes owners uncomfortable. It’s what’s in their head and what’s in their heart. It’s what word is invoking.

So what I tell owners, “Look, if I change the word to something else, does it make you feel better?” It usually does. It doesnèt make them feel any better at all, they still have that feeling in their head and their hearts for the word invokes a feeling, an emotion, that they don’t want to deal with. So it’s not the word. It’s actually the emotion. When you get pushed back from an owner on the word, call them out. Call the owner out on it and make them face the fact that they have to deal with this emotion that they are feeling and you’ll just get right past the word. That’s how we deal with the word itself. All owners are going to have some exit at some point in time and half of those will be voluntary and half of those will be involuntary. It is a part of business.

We actually find with the younger owners, they almost embrace it because what we have found is that with the younger owners, they are looking at an exit because they are looking to harvest what they’ve built and they will do it again. Actually, our San Francisco chapter did a panel with some young owners. It was really interesting to see their perspective on exit strategy. It was very different from an owner that, say, 55 or 60 that’s looking at an exit in the next 5-10 years. So that’s how we address that.

Now, as far as the process, the key is in the first stage, what we teach in our methodology and I do in my own practice is every engagement starts with evaluation of the business and an assessment for personal, financial, and business. It doesn’t matter whether we’re growing, we’re selling, we’re buying, we always start at that point because owners need to focus on building value. That is what this is about. So we went to owners and said, “I want to help you grow and increase the value of business.” That’s the way you should lead with them. Who doesn’t want to do that?

You start by assessing the value and normally when you’re doing the evaluation, which is an easy evaluation, you’re going to come up with a range of value because as you know, some businesses sell at three times EBITDA, some businesses sell at eight times EBITDA. So if I’m in a market, some are selling at three and some are selling at eight, well how do I sell at eight? What the assessment does is you need to correlate the results of the assessment with the valuation and you can point out to an owner, “I’m valuing you at four times, which is below the average, because you scored below average on your assessment and then you can point out specifically why you scored below average, and those are the things I mentioned before.

There’s too much risk in the business. The business is too dependent on you, you have a good marketing plan, you have a customer concentration issue, and what you begin to see is you’ll see the owner’s mind going because they are starting to get it and they are beginning to understand the correlation between the way they run their business and the value of the business. That usually is what I call the triggering event. Once an owner understands that, they are much more likely to move forward and pay an advisor to help them come in and harvest and build that value.

The nice thing about doing it with valuation is you’re able to give them a qualitative number where you can say, “Your business is worth 4 million but, say, you’re doing 1 million on EBITDA, we value you for 4 million, but the best in class doesn’t, so they do an 8. If we implement these things, we can drive you from 4 million in value to 8 million in value and here’s how we’re going to do it, and then it’s just a matter of putting in a plan and bringing in the right team to harvest and achieve that value.

Noah Rosenfarb: Tell me maybe about your experience interacting with some of the members and maybe some of the success stories that you’re seeing from advisors that joined EPI, got their CEPA designation, and maybe the before and after transition in their practice.

Chris Snider: Yeah, I’m sure we have a number of advisors who’ve got the same theory and system that I have that transform those practices. The most successful advisors are the ones that have come through and have transformed the practice to lead with the assessment and the valuation. The other thing that a number of our successful members have done is there are a number of tools that are available today that weren’t available before. A company like CoreValue, Corporate Value Metrics and Mouse all provide software products that allow you to do these assessments efficiently on the front end.

They are all strategic partners of EPI, and owners and advisors, you know, members of EPI can buy those products at a discount but those members are the ones that are the most successful when they have led with growth and value and not led with “I’m going to come in and I’m going to write an exit plan for you.” Those advisors don’t do well. Probably one of our most successful advisors is Craig West out of Australia. He took the program in 2010. He has written a book called The 21 Steps. He has four offices now in Australia. He has done just a marvelous job at becoming a leader in the industry.

Noah Rosenfarb: Yeah, what would you attribute that success to?

Chris Snider: His focus on valuing growth. If you read Craig’s book, what he talks about is protecting value, maximizing value, and harvesting value. Really, it’s all about value. Again, most owners are focused on income generation. “I’ve got a nice business and it’s generating $1 million a year and I’m living pretty well on that,” they are not translating that to value. Just because you have a business that produces a lot of income, doesn’t necessarily mean you have a business that is transferrable or has any value beyond that $1 million of income.

What we try to do is get the owners focused on value because when you’re focused on value, you’re going to drive income, but when you’re focused on income, you’re not necessarily driving value. That’s the whole key and going back to your other comment about the word, somehow, we have to change the paradigm that when they hear the word “exit” it doesn’t mean “end”. It means “value” is what it means. It means it’s a business strategy that focuses on building value.

Noah Rosenfarb: Yeah, so we’ve got this upcoming conference. What else do you want to share with our listeners about reasons to attend or reasons to come take a look at EPI and the CEPA designation?

Chris Snider: Yeah, a couple of things, we also have Bill Black. Some of the listeners might be familiar with Bill Black who has the show called Exit Coach Radio now. He is actually going to be covering the conference. He has an incredible following, mostly business owners, and we’ve asked him to come and cover the conference for us so that would be a lot of fun and he will be doing a lot of interviewing of attendees and running his radio show from Fort Worth during the conference. The conference was really engineered by the members so what happens is the CEPA program is a five-day program twice a year in Chicago, at the University of Chicago Gleacher Center Booth School of Business and the next program is November 10th in Chicago.

What happens is we cover 22 subjects and we have 13 different speakers from around the country that come in to teach. All the speakers are practitioners. You’re getting real life stories and you have a varied group of advisors – attorneys, CPAs, financial planners, banks. Probably the most positive thing we hear from the attendees, the students about the CEPA Program is the interaction they get during the course of the week. We do a lot of case studies and things like that. But when you’re covering 22 subjects for a four-day period, you can’t go very deep on any of them. So it’s very broad in terms of it covers a lot of material but it can’t go very deep.

One of the things we’re trying to address at the conference is the opportunity to go deep. So we have one day where we do what we call Deep Dive Guru Sessions. These are three-hour workshops where we bring people in and we drill deeper into a particular subject that has been identified by our members as something that they are interested in going deeper and learning more about. So for example Craig West, who I mentioned before, will be coming and doing a whole session on selling and marketing exit strategy work for example. So there will be deep dive sessions.

There’s also, in addition to the keynotes, we have breakouts and these are more like one-hour sessions typically put on by members where they are doing case studies, sharing case studies, and covering different subjects again that have been identified by the members as something that is needed. So it’s a variety of different things that we’ve got and then I think my son, Scott, has a fun night planned at Billy Bob’s, you know, honky tonk Billy Bob’s evening where we’re going to go over there and, I don’t know, maybe some people will take a chance to do some bull riding or something like that. We will enjoy the culture down there in Texas and have a little fun as well.

Noah Rosenfarb: Great, well for our listeners who want to register for the conference or learn more about EPI, where should they go?

Chris Snider: They should go to our website would be the best place to go. Go to the events tab and once you roll over the events tab, you’ll see our conference. It will pop up and get all of the information you need there.

Noah Rosenfarb: Terrific. Well, thanks so much for joining us today. Thanks to all our listeners for tuning in. Don’t forget to rate us on iTunes and share your feedback, and thanks so much for joining us. We hope to have you back again soon. Chris, I appreciate it.

Chris Snider: Thank you, Noah. Bye.

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Written by Noah Rosenfarb

Noah Rosenfarb
Noah Rosenfarb, CPA/ABV/PFS has devoted his career to advising business owners on all things related to money. He is a Personal CFO and Holistic Wealth Coach at Freedom Business Advisors, which provides middle market business owners guidance on how to successfully transition out of the management and or ownership of their company. Mr. Rosenfarb is the author of EXIT: Healthy, Wealthy and Wise.

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