ELITE ADVISOR BEST PRACTICES

Proof That a Wind-Down Strategy Is the Perfect Solution for Your Clients

Intentionally downsizing a business to focus on the best clients or customers can be far more lucrative‘and satisfying‘then selling out all at once.

By Josh Patrick

Key Takeaways:

  • Your clients don’t have to sell their business.
  • Your clients can keep 80 percent of their income and work one day a week.
  • Your clients will end up with a lot more money at the end of the day.
  • Your clients will be working only with people they enjoy and value.


Succession planning is a hot topic today. The problem is that the only solution in most cases is to either sell or close the business. But I want you to consider another option for your clients… the “wind-down strategy.” A wind-down strategy is very simple; you just decide to downsize the business. But like most simple ideas, it’s not always easy to do in real-life.

What is the wind down?

Very simply, it’s a strategy that allows your clients to keep their finger in the business pie while reducing the amount of time they work by 80 percent or more! Just a cave-at: This strategy is designed for professional service firms. If your client owns a retail store, a distribution company or a manufacturer, the wind-down strategy likely won’t work.

Here’s how you do it.

Decide who the best 20 percent of clients are

The first step your clients need to take is look at their book of business. Who are their best 20 percent of customers or clients? This doesn’t necessarily have to be their largest clients, but many of the larger clients tend to be the best clients, too. After you put the list together, add up how much of the firm’s revenue these top clients account for. If you’re like most firms, it will be 80 percent or more of the total revenue.

If your client services 100 clients that produce $750,000 per year in revenue, then your wind-down clients will probably account for $600,000 in annual revenue. Think about this for a second. Eighty percent or more of your client’s revenue probably comes from a very small group of clients or customers. What would it be like for your client to spend their time taking care of only the best and most profitable clients?

Put together a pro forma statement of what the firm would look like

You’re probably going to have a hard time figuring out what to do next. I recommend you look at your client’s business and see which types of expenses would remain if there were only 20 clients to service instead of 100. I bet you would cut a huge chunk of the costs out.

Overhead would go way down, as would the hassle of trying to take care of 80 so-so clients. Your client no longer has to put in 60-hour workweeks. Now they can work 10 or 15 hours and make a greater profit with 20 clients than they used to make with 100. That means they can take weeks of vacation at a time. Having a smaller business or practice allows you to do other things while keeping the lion’s share of the income from the former business or practice.

Compare this to selling

Let’s say your client finds working only 10 to 15 hours a week attractive. If you could figure out how to do this, you might find your client doesn’t want to sell their busi-ness.

Let’s say they could sell their business for $1 million to a buyer who agrees to put 40 percent down in cash and finances the remaining $600,000.

Don’t you think that your client might enjoy having something to do one day a week? And don’t you think your client would like to take home $400,000 per year instead of hoping they get paid the money they’re owed from the sale of their business?

Let’s think about this for a second. You can earn $400,000 in cash and then hopefully the remaining $600,000 over seven or eight years with a lot of risk involved. Or, you can get $400,000 per year for as long as you want with almost no risk. How? The wind down should produce about $400,000 per year in profits. That means the busi-ness would take in $800,000, have $400,000 in costs and leave $400,000 for salary and profits. Remember, there are only 15 or 20 clients left which means there will be little or no administrative costs. The owner could even find an outsourced solution for their administrative and overhead help

Isn’t getting $400,000 per year for working 10 to 15 hours a week an attractive idea?

Find a new home for the lower 80 percent

This is what your clients are thinking when you recommend a wind-down strate-gy: What am I going to do with the 80 percent of customers or clients who have relied on me for advice for years? Some of them started with me when I first got in the business. I can’t just stop servicing them.

The answer is you’re not neglecting them. What you are going to do is find a good home for them. You’re going to find another business that you can transfer these cus-tomers to. You’re going to help your client take the time to find a good match‘someone who will value the customers you’re going to move. And your client is still going to be around the business to backstop those customers if there’s a problem.

Here’s the hard part. I don’t want you to think about selling these clients. I want you to think about just finding them a good home. I want you to take just a little bit of money for your clients. You need to focus on finding them a good home and that’s it.

Over time, reduce the 20 percent

If you adopt this strategy, your client is likely to continue working way past normal retirement age. When you reach 70, your client might want to work even less.

If this happens, you do the same thing. Have them select a few more clients and find a good home for them. Eventually you’ll get to the point where your client has just five very good customers or clients.

The key here is to understand how your overhead works. Instead of having full-time staff, your client’s business will be moving to part-time staff. You might even be able to help your client find another similar business that’s willing to let them hang a shin-gle while getting money from your client for overhead to run their business.

If you do this, not only have you reduced the amount of time your client has to spend working, you’ve helped them find a way to get rid of all of their employees. For a small professional service business, this method of leaving your business is really simple. Unfortunately, simple is not always easy and that’s where your coaching will be invaluable.

Here’s the value

Let’s say you only use this strategy for 10 years. Let’s assume your client is age 60 when they start. Instead of selling their business and hopefully getting $1 million over seven years, they’re going to get $4 million over 10 years while only working part-time.

That sounds like a pretty good idea to me. What do you think about this? Let me know in the comments below.


About the Author

Josh Patrick, CFP®, is a serial entrepreneur and wealth manager who specializes in working with owners of privately held businesses. He spent 20 years in the commercial vending and food service business. From there he entered the wealth management business, where he now works exclusively with owners of private businesses, helping them create value in their business. His goal is to help business-owner clients create a better life. Josh can be found at Stage 2 Planning Partners.