I’ve worked with closely-held business owners for decades – as a CPA, tax consultant, and exit strategist. If there is one common denominator that holds true for each discipline, it is how crucial planning is in order to maximize one’s success. To ensure that the single largest financial transaction of your life – the eventual exit from your company – is a smooth and profitable one, essential areas such as minimizing taxes and maximizing returns require meticulous planning. Yet many business owners fail to plan for their eventual exit, or start planning too late.
Reasons Business Owners Don’t Plan Their Exit
In working with closely-held business owners, I hear many reasons for not considering exit planning. Do any of these sound familiar?
- It’s too early to plan.
- I don’t know what I want.
- Exit planning is too time-consuming.
- The process is too complex.
- My identity is tied to my company.
- I don’t ever want to retire.
- I’m the only one who can run the show.
- The unknowns are intimidating.
- It’s too difficult to deal with the associated family and employee issues.
- I don’t have, or know where to find, expert advice on exit planning.
Preparing for Financial Security
First, some interesting facts. In a study by business transition specialists, ROCG, 84% of survey respondents indicated that, upon their exit, the proceeds from the sale of their business would be critical to maintaining their lifestyle and financial security. Yet no more than 33% of businesses actually complete the sales process. Only 42% of respondents to the survey had formal exit plans in place. These statistics suggest a high correlation between having an exit plan and the ability to finalize the sale of your business.
The wave of retiring Baby Boomers is a factor as well. The majority of business owners in the U.S. are age 53 and over. A 2014 survey conducted by Pepperdine University revealed that 67% of business owners planned to retire in the next ten years. That was five years ago! The impact to the market by the trend of retiring Baby Boomers is already substantial and will intensify, which makes having an exit plan even more important.
Forecasts from The Exit Planning Institute (EPI) indicate that 4.5 million firms, valued at more than ten trillion dollars, will go to market over the next decade. But EPI President and CEO, Christopher Snider, predicts that sales will actually be completed for only 20 to 23% of these businesses. He attributes the inability to sell to a lack of critical planning for this event, especially taking those steps which will help determine, retain and recover the full value of their company.
If you are counting on maintaining your lifestyle after selling your business sometime in the future, now is the time to embark upon your own exit planning journey! There’s a step-by-step process for exit planning that will neutralize the intimidation factor. You’ll be inspired as you see things fall into place and are able to envision your future, your successful exit, and the next chapter of your life. And, your business will benefit now.
When you set your exit objectives and work backwards to determine what you need to do today in order to achieve those objectives, you’ll chart a course for the success of your company – one that is often more comprehensive than most business plans – with accountability built in.
The top three things you can do now to start the exit planning process
- Pick a date! You likely have an idea of when you’d like to retire, sell your business, or otherwise step away and into your next adventure – or venture. Give that idea a specific exit date. Write that date on a sticky note and post it where you’ll see it daily – perhaps on the door you use to leave your office at the end of the day. As you see that date each day, it will change the way you think. A stated exit date is like a seed you’ve planted to start the wheels turning about your eventual exit. It will motivate you to jump in and start working on the specifics. Now that you have the vision, what’s next?
- Understand the value of your business. Take our Value Driver Analysis which will help determine the current value of your business and what it must be worth for you to achieve your exit planning financial objectives. Identifying your “gap” and filling it is obviously a critical and major component of exit planning. This step will also clearly illustrate why you need years to cultivate and protect the value of your business, and therefore, the importance of starting your exit planning well before that date on your sticky note.
- Determine next steps to move forward in planning your exit strategy. Take our online Exit Planning Assessment to determine where you are in the exit planning process in terms of decisions you’ve made, information you have available, and where your priorities lie. Then share with me the exit date you’ve set and I’ll be happy to be your accountability partner! Additionally, take advantage of my complimentary review and deeper dive into the results of your exit planning assessment.
Once you start the process you’ll realize the opportunity you have to create the future you envision, and how your business will benefit now from the exit planning process. For more information about exit planning, visit https://rjzinc.com/.