EXIT PLANNING SOFTWARE – HOW DO I CHOOSE?
According to Peter Christman, an original co-founder of EPI, one of the key components to building a successful exit plan involves maximizing the business’ value and ensuring that the business is transferable.
Advisors play a key role in helping clients develop and implement these plans. To ensure their clients’ objectives are achieved, advisors build business models which often incorporate the use of software tools, solutions, and support to create plans they can deliver, and which meet client expectations.
Software tools and solutions play a pivotal role in enabling advisors to not only build effective exit plans but also effective practices. Selecting the appropriate exit planning software tools, however, can be challenging for several reasons:
- Valuation is both science and art. Building effective valuation software requires domain knowledge in addition to technology skills. Solutions vary regarding valuation capabilities, methodologies, valuation expertise, user interfaces, and the ability to provide support.
- Advisors play different roles and levels of expertise within the exit planning process. Value builders/consultants, financial planners, and facilitators approach the exit planning process differently – they don’t all have the same needs and requirements regarding software capabilities and features.
- Advisor practice models have different business and financial constraints and requirements. Exit planning software providers vary regarding pricing models which don’t always align with advisor requirements. Solutions may include costly certifications. Some billing models are based on fixed monthly recurring fees while others have pay-as-you-go options.
- Exit planning is a process – for advisors, there are few, if any, standards for building out their business models. With experience, advisors often change and evolve their practices and their deliverables. However, once software solutions are selected and embedded in their model, it can be difficult and costly to make changes.
Understanding Your Advisor Role
When building their practices, advisors often seek to make decisions about software solutions before fully understanding their role in the exit planning process, how their practice will operate, and what skill sets are necessary to build effective exit plans. Selecting exit planning software prior to thinking through these issues is often like putting the cart before the horse.
Advisors typically do not possess all the skills necessary to take clients through the entire exit planning process. They often possess a specific specialty and then determine what additional skill sets are needed for their team. Understanding their role is an important key in making selections about appropriate software solutions.
Value Builder / Consultant
Description: Plays an active and hands-on role in the initial assessment and strategy development phase of the exit plan. Will play an integral role in the tactical implementation of identified recommendations.
Responsibilities:
- Plays an active role in business assessment:
- Determines estimate of business value
- Assesses, scores, and measures strengths/weaknesses of the business
- Identifies existing risks impacting business value
- Presents recommendations to reduce business risks
- Provides comparative market data
- Develop a strategic exit plan
- Is an active participant in plan implementation
- Has built or access to appropriate skill sets to drive the entire process
- Has the capabilities, process, and tools to project manage the process
- Provides accountability
Financial Planner
Description: Plays an active and hands-on role in the initial assessment and strategy development phase of the exit plan.Is not typically involved in the tactical implementation phase.
Responsibilities:
- Plays an active role in business assessment:
- Determines estimate of business value
- Assesses, scores, and measures strengths/weaknesses of the business
- Identifies existing risks impacting business value
- Presents recommendations to reduce business risks
- Provides comparative market data
- Develop a strategic exit plan
- Provides accountability
- Helps identify players/team that will implement the plan
Quarterback
Description: Ensures that the process runs smoothly, helps identify players/team, and provides accountability.
Responsibilities:
- Oversees Exit Planning process
- Helps identify players/team to run the process
- Provides accountability
Defining Your Process
Once an advisor understands their role, advisors also need to develop and adopt a process for working with their clients. Components of the process may include identifying clients, building a pipeline, determining business value, doing business assessments, creating strategic plans, and engaging in tactical implementation activities to make plans a reality.
With an understanding of their role and process, advisors can then determine the expertise needed to round out their team. Typically, advisors will either:
- Build their bench by partnering with a dedicated team of other advisors and experts who bring the appropriate skills and expertise; or
- Refer their clients to a value builder/consultant who already has a team of experts to facilitate the exit planning process.
Advisors are now ready to make decisions about the exit planning software tools and solutions that will support them in their practice.
Choosing the Right Exit Planning Software Solution for Your Practice
Software tools and solutions are meant to make an advisor’s practice easier to manage and operate more effectively. They offer a broad array of capabilities and features to address, support, and enhance an advisor’s exit planning practice, including:
- Calculation of ‘estimates of value’
- Business assessment – identification of risk issues within the business
- Development of action plan/recommendations
- Performance scoring/comparisons to ‘best in class’ business operations
- Industry and comparative data
- Project management/implementation capabilities
- Business development/marketing content
- Support
Key Features That Exit Planning Advisors Should Consider When Selecting Their Software Solutions
- Valuation Methodology: For planning purposes, estimates of value are sufficient. They can, however, be calculated utilizing different methodologies, which can affect the relative precision of a determined range of value. Using a Discounted Cash Flow (DCF) method is generally more precise than the Market Multiple Approach (MMA). A DCF method is specific to the cash flow generating ability of the subject company, while the MMA approach is dependent on transactions of other businesses that may or may not be comparable to the subject company.
- Assessment Capabilities: Advisors need assessment capabilities to evaluate financial performance and profitability as well as risks to future cash flows. In addition to the finances, solutions need to have the ability to measure non-financial elements of the business, their risks, and their impact on value. Non-financial elements of the business include qualitative factors – market conditions, barriers to entry, key person risk, customer concentration, system processes, impact of technology, and strength of management.
- Scenario Modeling: Advisors should be able to create and analyze multiple exit scenarios, helping clients understand the potential outcomes of different strategies.
- Data Security: Robust security measures to protect sensitive financial and business data, ensuring compliance with relevant regulatory requirements.
- Client Reporting: Customizable reporting features to generate professional reports summarizing the exit planning process and the ability to show clients where their business stands with the ability to determine and make recommendations for ongoing strategies.
- Client Portal: A secure client portal where advisors and business owners can access important information, track progress, and collaborate with their advisors.
- Exit Readiness and Attractiveness Assessment: The ability to assess and show clients their readiness and attractiveness for business exit, highlighting areas that need improvement.
- Market Research and Industry Insights: Access to market research and industry insights to help advisors and clients make informed decisions about the timing and strategy for exit.
- Marketing Content/Collateral: Tools that enable advisors to build their client base by providing positioning information necessary to help clients understand an advisor’s service offering.
- Analytics and Tracking: Dashboards and analytic tracking features that provide insights into the progress of the exit planning process and key performance indicators.
- Project Management Forms, Process: Tools to ensure that implementation processes are documented and can be used for tracking and accountability.
- Customer Support: Reliable customer support to assist advisors in case of technical issues or questions about using the software or help with understanding and interpreting the output.
Finding all of these features in a single exit planning software tool can be challenging. Some tools may emphasize marketing content and business development capabilities, others may focus on project management, while still others may be more suitable for valuation estimates and business assessments. By understanding their role as exit planning advisors, their practice’s process, and their business model, advisors will be in a stronger position to select the ‘right’ software solution(s) that will meet their needs as well as the requirements of their clients.
Exit planning advisors will then be empowered to offer more informed and strategic guidance to their clients, ultimately leading to smoother and more successful business exits. Additionally, exit planning software that is user-friendly and provides excellent customer support can further enhance an advisor’s credibility and effectiveness.
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