Lessons Learned about Meeting Challenges during CEPA Training

Posted: 5-31-22 | Innovia Wealth

A conceptual image of a silhouette of business person in a suit with briefcase walking towards a column of light

One of my favorite books of all time is Mindset by Carol Dweck. In this book Carol talks about having a growth mindset instead of a fixed mindset. “In a growth mindset, people believe that their most basic abilities can be developed through dedication and hard work—brains and talent are just the starting point. This view creates a love of learning and a resilience that is essential for great accomplishment.”

Earning My CEPA Designation

As a firm, we at Strategies Wealth Advisors push each other to step out of our comfort zone and to constantly learn. Because of this, I recently earned the Certified Exit Planning Advisor (CEPA) designation after completing the Exit Planning Institute’s intensive 5-day executive MBA-style program. Here are some valuable lessons I took away from this program:

  • In the past, wealth was created from physical assets: land, natural resources, and machine labor, but technology has disrupted that entire system. Today, wealth is created by your ability to create, transfer, assemble, integrate, protect, and exploit knowledge assets. These are intangible assets. Believe it or not, about 80% of a company’s value usually rests within its intangible assets, NOT its tangible assets!
  • Intangible assets are the sum of a company’s intellectual capital which is divided into 4 categories:
    • Human Capital → the talent of your team
    • Customer Capital → the strength of your relationship with your customers
    • Structural Capital → the business infrastructure
    • Social Capital → your company’s culture and brand
  • Value can only be harvested if your intellectual capital is transferable
  • Why many exits fail:
    • 66% of business owners are not familiar with all exit options
    • 78% of business owners have no formal transition advisory team
    • 83% of business owners have no written transition plan
    • 49% of business owners have done no planning at all
    • 93% of business owners have no formal life-after plan
    • 50% of exits are cause by one of the five Ds (Death, Disability, Divorce, Distress, Disagreement)
  • Owners leave money on the table because they are solely focused on income generation, not enterprise value. In other words, by focusing internally on improving and growing their company instead of just increasing income, the business owner will sell for a higher multiple.
  • Aligning personal, financial, and business objectives is a core principle on which the CEPA program is built
  • Personal, financial, and business goals must be in alignment to successfully grow and transition your business
  • Financial planning provides comfort for business owners when deciding their next steps. It especially helps owners to determine what is optimal for them after liquidating their business.
  • Defining your financial needs in retirement is a different way of thinking about wealth and cash flow. If you exit your business at 60 or even 70 years of age, it is likely you will live another 20 to 30 years. It is important to have a vision for what you want to do with that time.
  • Having a full and complete exit plan that considers your business, financial, and personal needs is crucial for a profitable business exit.

Exit Planning at Strategies Wealth

We have a client who sold their company for $67 million. They rolled over a small portion of their ownership to the fund that now has majority control of the company he founded. He built the corporation over a quarter century with a consistent track record of sales growth, a strong management team, and a few highly differentiated product offerings. He earned that sale price.

Overnight, he needed to create a new engine for generating income and wealth. On Tuesday, his largest asset was his company, a concentrated and illiquid asset. On Wednesday it was cash, an asset on the opposite end of the risk spectrum. He meticulously planned his trip to the peak of the mountain, the day he sold his company. He did not give much thought to the descent, however. And as many climbers will attest, the trip down is just as challenging (more than 80% of climbing deaths are on the way down!), if not more.

Fortunately, Strategies Wealth met him just in time. Based on his goals, we helped create the roadmap for his life after the sale. With a solid plan in place, he focused again on his business and the execution of its sale.

If exiting or transitioning your business is in your future, it’s crucial to have a plan in place prior to selling the company. My goal as a Certified Exit Planning Advisor is to meet clients before they exit their business so that they can focus on running their company which almost always translates to a higher sales price.

If you’re in the market for a new book to read, I highly recommend Mindset. It explains how to prepare yourself for these pivotal moments in your life: “In a growth mindset, challenges are exciting rather than threatening. So rather than thinking, oh, I’m going to reveal my weaknesses, you say, ‘Wow, here’s a chance to grow.’”

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