Why advisers should enter world of exit planning

With more Baby Boomers reaching retirement age, many business owners are urgently looking for the exit but finding they've left their planning too late. Their dilemma is a ripe opportunity for financial advisers.

Speaking to Financial Standard, Exit Advisory Group founder Simon Bedard said leaving enough time to plan a business exit, including seeking advice, is crucial to ensuring a successful transaction.

Based on his research, only 20% to 30% of businesses listed are successfully sold on the market, which creates a great risk for those looking to fund their retirement with the proceeds of a business divestment.

"Your business might be making up 60% or 70% of your net worth... I don't think there'll be an investment adviser on the planet that would advise you to have that amount in one asset, particularly in an illiquid asset that carries intrinsic risk compared to other asset classes," Bedard said.

"This is an issue for people thinking about getting out of their business."

Bedard believes financial advisers are well positioned to help as they understand this period of transition and the time it takes for clients to liquidate capital from a business.

"... [Advisers can] remind them that it takes time to divest significant assets like this but also helping them in the broader context to get ready for that type of illiquid event... it makes sense for them to prep their clients early," Bedard said.

"Because [the clients] don't necessarily have the framework to resolve these issues."

However, he warns frustration can grow among clients as the process to sell can be "gruelling", with clients sometimes coming with "unrealistic expectations" as to the value of their business.

Bedard notes there is no government policy that supports business owners when it comes to exiting compared to the US and Canada - even then, it requires five to 10 years to procure a transaction at maximum value.

He believes if the government can provide more support around business succession, the benefits for the broader society would be significant.

"At the moment, the policy settings don't reflect this at all," he said.

"For people trying to get into business, if they acquire a small business, but it's been running for 20 years with existing customers and a proven model... is a less risky option...

"I'm not saying we shouldn't [encourage entrepreneurship] but we're racing towards this succession cliff where all these people have to leave these businesses and if we don't have a mechanism to help people to buy these businesses, a lot of them are just going to shut down."