Are You Ready To Exit Your Business?

10 Ways to Check if you are Ready for a Business Transition

What does ready mean? How do we define ready?
Below is a set of 10 simple statements to help owners determine what they need to accomplish to be prepared or “ready” to transition their businesses. Use this as simple checklist.  You are “Prepared” or “Ready” to transition your business if you…

❏ Have spent some time and money getting educated on the process of how to transition your business. You have discussed transitioning with your loved ones.
❏ Your personal, financial and business goals are aligned meaning they are
defined, co-dependent, and linked.
❏ You have created an advisory team which includes at minimum: an attorney, CPA, wealth or financial advisor, exit advisor, spouse or partner or other family who is a “significant other” in your life. Other advisors that may be included: personal friends and advisors, banking advisor, M&A attorney,
estate planning attorney, real estate attorney, business attorney, ESOP
specialist, tax specialist, insurance specialist, foundation / charity, key
employees, investment banker or business broker, board members, family or
personal counselor.
❏ You have created a contingency plan which should include buy-sell
instructions, appropriate insurance, and specifies what should happen if
before you transition something was to happen outside of your control that
would prevent you from operating your business or unwillingly force you to
transition. You have reviewed this plan with your trusted advisors including
family members and/or partners if applicable.

❏ You have a completed a strategic analysis, business valuation and personal, financial and business assessment(s) within the last year.
❏ You have considered all of your exit options and optimum deal structure and
weighed the pros and cons of each in relation to your stated goals and
❏ Your transition plan is written and includes goals and objectives, clearly
defined tasks and accountabilities, definition of your transition team,
definition of your transition process, a plan leader or project manager,
timelines, a budget and your role before and after transition. This plan ideally
has a multi-year implementation timeline.
❏ You have considered and designed a post business life-after plan. This plan is linked or part of your wealth management plan which has been prepared by a professional financial advisor and if applicable, estate planning attorney, insurance specialist, tax specialist and charitable foundation specialist.
❏ You have a pre-transition value enhancement / preliminary due diligence
project underway to de-risk the business, maximize its value, minimize taxes
upon transition and improve the probability of a smooth transition to the next owner including family, partners, or employees if applicable. Family
transitions should be treated no differently than other transition options.
This plan ideally has a multi-year implementation timeline.
❏ You have a management program underway to ensure the post transition
leadership is prepared to operate the company after you exit and secured the appropriate specialists to handle your desired transition option.

A Business Owners 3 Most Critical Gaps

Three numbers every business owner should know and manage to meet their goals.

I am not talking about the three key numbers you need to track in your business; sales, profits, and cash.
I am talking about managing your value, so that your can reach your personal goals.

These are the most critical three numbers, and a way to think about them.

What good could you do in the business with that extra flow?

Profit Gap = The Profit You’re Sacrificing by Not Operating at
a Best-in-Class Level
= Best-in-Class Profit at Your Level of Sales – Your Actual Profit
Key Points:
• For the purposes of this discussion, profit is best defined as earnings before
interest, taxes, depreciation, and amortization (EBITDA)
• To ensure an apples-to-apples analysis, your actual EBITDA should be
re-casted or adjusted for
o Extraordinary or one-time events
o Discretionary expenses that are tied to the owner
o Expenses that are currently above or below market rates such as rent,
compensation and others

How quickly would narrowing your Value Gap close your Wealth Gap?

Value Gap = The Business Value You’re Sacrificing by Not
Operating at a Best-in-Class Level
= Best-in-Class Value if at Your Level of Sales – Your Actual Business Value
Key Points:
• The basis of the Best-in-Class Value begins with the Best-in-Class Profit at
Your Level of Sales (determined in the Profit Gap analysis)
• The Best-in-Class multiple is applied to the Best-in-Class Profit
• Your actual value should be based on your actual re-casted or adjusted

How Will You Bridge the Gap?

Wealth Gap = The Additional Wealth You Need to Accumulate
to Meet Your Goal
= Your Net Worth Goal – Your Current Actual Net Worth (not including your
Key Points:
• For the purposes of this discussion, do not include the value of your business
o It is not easily converted to cash
o You may or may not convert it into cash depending on what you decide to
do with it
• As you consider your net worth goal, identify:
o What you truly need to live your life the way you would like
o What you want

The 6 D’s of Black Swan Events & Exit Planning

Normally called The 5, for Owners it is the 6 D’s of Personal Black Swan Events

Did you know that 79% of business owners have no written transition plan and 48% have done no exit
planning at all? And on top of that, roughly 50% of all business exits are involuntary and are forced
by dramatic external factors. You need to have a well-thought-out plan of what happens if something
unexpected happens to you or someone in your family, directly impacting your business.

Owners need to plan for how they want to walk away
from their business not only in a perfect scenario,
but also in a worst-case situation. Throughout
the exit planning process, it is critical to consider
the following scenarios that force owners to exit
their business hurriedly, and often leaving value
on the table. They are often referred to as the 5 D’s:

  • Death
  • Disability
  • Divorce
  • Disagreement
  • Distress
  • Disruption

We often think that a Will addresses the needs upon
the death of an owner. If your partner or spouse
passes, do you have the ability to continue their job
at the level they were performing it? If you’re put in
a position where you need to stay home to take care
of a suddenly sick or disabled family member, what
will happen if you are forced to exit your business
due to your inability to come into work?
It is important to run through the tough questions
about what you want to happen to your business
if you have to exit your business prematurely.
Statistics have shown that in the four years
following an owner’s death, sales declined 60%
on average and employment fell 17%, resulting
in a decline the overall valuation of the business.
Additionally, two years after an owner’s death, firms
are 20% more likely to fail or file for bankruptcy

It is important to have a plan in place to avoid
these issues happening to your business in your
sudden absence.
What do you want your family, clients and
management team to know? What do you want
to happen if you die or become disabled? What
should happen if you or your spouse wants a
divorce? What happens if there is a disagreement
between business partners? An unplanned exit can
not only impact the day-to-day operations of your
business, but also the tax and legal aspects of it,
along with the value of your company. You need to
create contingency plans for each of the 5 D’s to be
properly prepared for any unplanned scenario.
While each of these unplanned events will
undoubtedly be treated differently, an important
step to take is creating and communicating the
action plan for each contingency. This is done
through a contingency letter, which serves as a
playbook that is a shorthand to your operating
agreement and your estate planning documents.
Your contingency letter should outline what you,
as the owner, would like to happen if you can no
longer operate the business.
Have you planned for these contingencies? Part of
the role a CEPA. plays is to educate the business
owner on how to de-risk the business. Some of
the largest risks to the business can be planned
for and some cannot. These are events that are
usually out of your control and can ruin the value of
your business.


Imagine right now; you are in the middle of an intersection and are T-Boned. What do you want your family,
management team, and ownership team to know? What happens to your loans? Are the beneficiaries on
your assets and life insurance correct? Who should family and management talk to for advice? Do you have
a documented plan for those impacted by this event? What obligations does your business have to your
estate for the value of your shares?


Now imagine that you had a stroke and cannot talk or write. Does your family know where your important
papers are? Do you have a power of attorney for financial and medical matters? Do others have essential
passwords that enable them to pay your bills or interface with customers, vendors, etc.? Will this event
invoke a purchase of your shares? How will it be paid? Who has the right to vote your shares?


Your spouse announces that he/she has grown apart from you and now wants to end your marriage while the two
of you are still friends. How will your shares be valued in a divorce? Do you have a prenuptial agreement? How
will the changes in your finances impact the cash needs of the company? Do you know your options on how to
create a non-adversarial process to make the decisions needed to unbundle your financial affairs at the end of a
marriage and mitigate the impact on your business?


When multiple partners enter into a business, is it all roses and rainbows? They rarely prepare for conflict with a productive exit clause. Like all relationships, business partners sometimes decide not to co-own a
business. How will your interest be valued? How will it be paid?


2020 has taught all of us some painful lessons regarding business interruptions and external threats we could
never imagine. Many businesses suffered disruption to their business’s productivity and the delivery of their
products. What was the strength of your back up system? What insurances did you have to cover business
interruption? Good contingency planning includes risk reduction strategies and policies to protect against
everyday disaster situations, including data breaches, property disasters, supply chain disruption, work safety
incidents, and critical employee loss.


Time, innovation, and technology continually march on. Some business can become completely unviable overnight. Others slowly bleed to death. CEPA’s work together to create a plan that will “De-Risk” the negative impact of all these events. CEPA’s will help you assess what
you currently have in place, what you may need to do as your systems grow and change, and why this process should be reviewed

One of the best ways to protect against the 6 D’s is proactively during the Value Acceleration Process.

Homeowners Insurance Discounts

The 10 Biggest Discounts

  • New home construction
  • Age of home (5-10 years or less)
  • Home and auto bundle
  • Significant series of upgrades (electrical, heating, plumbing)
  • Construction type (fire, hurricane, or earthquake resistant)
  • Roof upgrade
  • Advance purchase
  • Loyalty ( 5-10 years or more)
  • Paid in Full

CompanyTypeAverage discount
New HomeNew Construction Recently Purchased40%
Age of home5 Years Old26%
BundleHome And Auto18%
UpgradesElectrical, plumbing, heating done at once or over recent short period of time13%
Age of home10 Years Old13%
Construction typeFire Resistive11%
Construction typeSuperior11%
UpgradesRoof Upgrade11%
Advance Purchase10+ Days Advance Purchase9%
Advance Purchase7 Days Advance Purchase8%
Loyalty10+ Years Renewal8%
Construction typeMasonry7%
Construction typeFrame - To 66% Masonry Veneer6%
Construction typeFrame - Over 66% Masonry Veneer6%
Paid in FullPaid in Full6%
Loyalty5 Years Renewal6%
Claims Free5 Year Claims Free5%
Claims Free10+ Year Claims Free5%
Hail Resitant RoofHail Resistant Roof5%
Loyalty3 Years Renewal5%
Construction typeAsbestos/Stucco4%
Fire AlarmCentral Station4%
Fire AlarmFire Department4%
Gated CommunityWith Patrol4%
BundleHome and Umbrella4%
BundleHome and Life4%
Burglar AlarmPolice Department4%
Burglar AlarmCentral Station4%
Age of home15 Years Old4%
Water Safety SystemWater Leak Detection - Shut Off And Alarm4%
Water Safety SystemWater Leak Detection - Shut Off3%
UpgradesElectrical Upgrade3%
Gated CommunityWithout Patrol3%
Water Safety SystemWater Leak Detection - Alarm3%
Automatic paymentsElectronic Fund Transfer3%
UpgradesPlumbing Upgrade2%
Construction typeFrame - To 33% Masonry Veneer2%
Burglar AlarmLocal2%
UpgradesHeating Upgrade2%
Fire AlarmLocal2%
Age of home20 Years Old2%
Smoke DetectorSmoke Detector2%
Fire ExtinguisherFire Extinguisher2%
Storm ShutterStorm Shutters1%

Popularity: A Bridge Between Classical and Behavioral Finance


This session from the 72nd CFA Institute Annual Conference is based on the CFA Institute Research Foundation book, Popularity: A Bridge between Classical and Behavioral Finance. Roger G. Ibbotson discusses:

  • “popularity,” or how much a security is liked, apart from the fundamentals: The more investors like it, the higher the price but the lower the expected return.
  • a new approach to asset pricing: the popularity asset pricing model (PAPM), which builds on the CAPM but includes additional investor preferences beyond risk aversion, such as liquidity and brand preference. These specific preferences are aggregated into security prices and are not arbitraged away.
  • that preferences can be rational (classical) or emotional (behavioral), so the PAPM provides a bridge between classical and behavioral finance.

Frontiers of Behavioral Finance

ason Voss, CFA, and Ron Rimkus, CFA, delve into the realms of behavioral finance over coffee and discuss why getting beyond the diagnosis of behavioral finance to a prescription for it is so important for investment professionals. Voss and Rimkus also share their tried-and-true prescriptions for “using your brain better to see reality for what it is.”

Behavioral Finance Compared to Efficient Markets

Christopher Malloy is the Sylvan C. Coleman Chaired Professor of Financial Management in the Finance Unit at Harvard Business School, and a Research Associate at the National Bureau of Economic Research. His research focuses on topics in behavioral finance, asset pricing, investments, fintech, family office management, labor economics, and empirical corporate finance. His research has appeared in the Journal of Political Economy, the Journal of Finance, the Journal of Financial Economics, and the Review of Financial Studies, and has been described in The Financial Times, The Wall Street Journal, The New York Times, and various other media outlets.

Behavioral Finance in the Time of COVID with Meir Statman PhD

In his Research Foundation monograph, “Behavioral Finance: The Second Generation,” author and researcher Meir Statman describes people as “normal” — neither “rational,” as assumed by standard finance, nor “irrational,” as described in the first generation of behavioral finance. In this webinar, Professor Statman will discuss the mental mistakes that investors frequently make on the way to satisfying their normal wants, especially in the context of the current global pandemic and financial crisis. The second generation of behavioral finance can help avoid errors and provide answers to important questions about saving and spending, portfolio construction, asset pricing, and market efficiency during tumultuous periods.

This is an archived recording of a live webinar that took place on 29 April 2020.