It’s a fact, 100% of business owners will exit from their business one day.
However, according to a National Survey conducted in 2016 by PNC Wealth Management and the Exit Planning Institute (EPI), 86% of all business owners have not completed any formal education related to transitioning their business. This same study reported that 50% of all business owner exits were “not” voluntary. They occurred due to death, disability, divorce, distress or disagreement. This results in a tremendous loss of business value.
What is Exit Planning? It is a “Process” to help business owner operators access their business and personal financial readiness as it pertains to ownership transition and retirement.
In other words, convert an illiquid asset into a liquid asset that meets all of their financial objectives while eliminating the risks associated with owning a business.
The reason to stop delaying: of 4,500,000 small to mid-size businesses in the U.S. today that employ at least one employee, 63% are owned by baby boomers. The EPI survey confirmed that 76% of these owners will want to transition within the next ten years.
According to another survey of 200 business owners conducted by Wilmington Trust, the top cited reason business owners gave for not pursuing long-term transition planning was because they enjoy running their company. This implies an issue of control over the company. It’s hard to consider giving up control of one’s company. However, the act of planning does not in and of itself mean losing control over one’s company.
The act of planning can provide clues to the best options for the owner to consider and prepare the owner for any unsolicited third-party offers or surprise health changes.
Another common response to the challenge of planning is time. It takes a lot of time and attention to succeed in business today. However, if your business cannot operate without your daily intervention, it might raise the issue of transferrable value.
The act of planning for one’s transition is a process that can lead to changing the owner’s outcome in several ways. First and foremost is that business “Value” is the primary long-term goal – not business income. This is a major paradigm shift for most owners. Most owners create lifestyle businesses – meaning the first duty of the business is to provide for a nice income as opposed to growing “Value”.
Profitability is important; however, creating transferrable value can create significantly greater net worth that results in a more salable business when deciding to exit. Allowing value to drive the timing of the exit can produce more successful outcomes than allowing age to be the determining factor.
Preparing to exit is not an end, but a beginning. The process involves assessing one’s personal and business financial situation with a focus on maximizing the value of the business. It requires many advisors with backgrounds in Legal, Accounting, Human Resources, Business Coaching, Investment Banking, Value Creation, and Financial Services. The good news is that a whole new profession has emerged to focus on exit planning. These advisors who come from all the professional backgrounds mentioned above generally have been working as advisors to business owners for years but have now decided to specialize in advising owners on the exit planning process. The first step is finding that specialist who has the credentials to advise and coordinate this entire process for you. And when you do, you will “Change the Outcome”.
