Being an entrepreneur is like taking a leap of faith by jumping off an airplane from 35,000 feet and learning mid-air how to open the parachute so that you can land safely on the ground. Your fate depends on whether the parachute opens. Training or assistance in opening the parachute offers a much higher probability of a safe landing.
An advisor plays the role of a trainer who helps prepare you for the future. They bring a fresh perspective, field experience, and new ideas that propel a business towards growth. If you choose the right business advisor, you can easily steer your business in the right direction and become a successful entrepreneur. Selecting the right advisor for your business ensures you land safely.
Definition of an Advisor
A business advisor provides expert advice in a particular business area or industry such as security, management, accounting, law, human resources, marketing, financial control, engineering, science, digital transformation, exit planning, or other specialized fields. They help resolve your business problems by helping you bridge the gap between your business aspirations and the actual state of the business.
A business advisor may be a generalist, a specialist focusing on finance, marketing, or sales, or an industry expert with a deep insight into your niche market. They apply their insight and expertise to understand the business and present ideas, plans, and strategies to improve your company’s profitability and resilience. They are often financial mavericks, business planners, marketing ninjas, or sales coaches.
Strategic business advisors are often CPAs, CEPAs, attorneys, and financial planners in the exit planning industry. The advisory team leads and coordinates the entire exit planning process from data collection to the final implementation of the strategic growth plan. Their primary responsibility is to ensure the business owner’s financial security after exiting the business.
How to Find a Key Advisor
Business owners find advisors through various sources, the most common being referrals from professional colleagues, existing advisors, or friends and family. Other sources include local chambers of commerce and independent trade associations.
No matter how you find a business advisor, check if the advisor matches your expectations and business requirements. A capable advisor has the following traits:
- They understand your industry and are well-versed in its legal, financial, tax, and operational requirements.
- They have experience working with similarly sized companies.
- They have the relevant experience to handle and resolve business issues common to your kind of business.
- They are qualified and trained as advisors.
- They are active members of either a professional group or a trade association.
Once the business owner has collected pertinent information about potential advisors, they can easily shortlist the right candidate to schedule the first meetings using the above criteria.
Gathering more information in the first meeting is essential. Ask the following questions to the prospective advisor:
- What similar projects have they been a part of previously? What references can they provide?
- What approach(es) will execute growth initiatives or other processes?
- Who will work alongside them, who will be a part of the business advisory team, and how many members for the team do they recommend?
- What do they charge, and how will the fee be calculated? Will or can they provide an estimate of the project cost?
Owners should also assess their advisor’s personality for compatibility to ensure an amicable working relationship.
When looking for an advisor to help design and execute your value creation strategy, know what to avoid.
3 Things to Avoid When Looking for an Advisor
1) They don’t focus on value.
The exit planning process is complex, involving myriad factors, including industry, geographical location, operational history, finances, etc. Managing the many facets of these factors and other complex steps requires both time and effort.
For instance, a CPA conducts the financial analysis of all business units, business valuation, estate tax analysis, tax planning, and financial counseling. Their primary aim is to build business value and help the owner exit the business. They also help in establishing business goals by assisting with priorities. While they indeed educate business owners about cost reduction or ways to increase revenue, they might resist taking the same conversation one step further to discuss the direct impact of these things on business value. They are more focused on building a good business strategy while overlooking the most critical aspect of value creation.
A good advisor serves as the client’s mentor. They have a sound understanding of the client’s business needs and business model. They educate the client on the importance of enterprise value and help them stay on track.
An advisor who isn’t focused on the primary goal of building the business’ value is more likely to refrain from having the most crucial conversation: i.e., value creation. This is not a good sign if you want to exit the business ASAP.
2) They don’t tell you how it is.
Most business owners vastly overestimate their companies’ value. The advisor plays an integral role in conducting a professional business valuation to calculate the company’s actual business value.
The three primary responsibilities of a business advisor are:
- Educating the owner about the exit planning process, especially on the importance of building the business’s value
- Coordinating their activities with other advisors and the client’s internal advisory team(s).
- Ensuring a smooth exit and transition from the company.
A smooth, profitable business exit is impossible if the advisor fails to place business value at the heart of every conversation. This conversation is essential since most business owners do not start their companies with retirement goals in mind. Instead, they focus on their immediate concerns and fail to consider their business’s future value.
This is precisely where an advisor steps in. Still, if the advisor also doesn’t prioritize the issues most important to their clients, then those clients invest their time and energy in resolving issues that have little or no impact on the business’ value. For an exit plan to be successful, it must address those aspects important to the business owner, the most critical business value.
3) They won’t adjust their plans.
Advisors have privileged access to the inner workings of their client’s business and financial goals. So, the first step is to help owners establish an understanding that innovation is not always technical. To simplify, creating new and innovative economic activities does not always require thorough technical know-how. This understanding helps business owners understand the business value and the future value they need to obtain the retirement they want.
A few ways advisors can help business owners build their enterprise value are:
- Reduce owner dependency. This relieves doubts that the company cannot function without the owner, or a change of ownership will have a negative outcome.
- Document organizational processes. Documenting all organizational processes, especially when the plan is to sell the business, enables a prospective buyer to understand how the company functions before buying it.
- Promote employee competence and loyalty. Employees play an essential role in building organizational knowledge, experience, and competence; loyal, skilled employees are essential even after the company is sold.
- Design a strategic growth plan to build business value. Last but not least, each business is different, and each business owner has different personal goals. A good advisor understands this and does not apply a one-size-fits-all approach, but has honest, open conversations with the owner before presenting the plan that helps them realize their business and personal goals.
What’s Next for You?
The pandemic has proved that exit planning has failed. Both owners and advisors must be prepared to embrace this change readily and step up their game to succeed in their business aspirations.
We at Value Scout understand that as value creation advisors and exit planners, we have a rare opportunity to help business owners achieve their biggest goal – a successful exit and transition on their terms. Connect with us today and get to know each other better!