According to Richard E. Jackim in The $10 Trillion Opportunity, “fewer than 30 percent of private businesses have an actionable succession plan. By default, most business owners simply do nothing.”
There are many reasons why a business owner of a private company does not have an exit or transition plan. The following are seven of these reasons:
I am planning on working until late in my life.
Even though someone plans on working until late in their life, there are many issues that should be addressed and planned for in advance. These issues include: (1) What happens if the owner dies or becomes disabled? (2) Can the company build a management team that will take on more and more responsibility for running the company, so that the owner can slowly ramp down the time they work in the business? (3) What will be the final disposition of the company?
I have family members that will be taking over the business when I leave.
Transitioning ownership to the next generation has been a common way for an owner to exit. However today, more often the next generation is choosing not to work in the business or does not want to take over ownership of the business. Even if there is interest from the next generation, a transition plan needs to be developed that properly prepares them to be an effective owner and manager.
My business is a service business and I can’t get much for it.
It is true that certain service businesses do not get as high a multiple as other industries. Therefore, it is even more important to develop a plan to maximize the value you can get from your business. You also may be able to follow many of the concepts presented in the book Built to Sell by John Warrilow, which describes ways in which you may be able to turn your service into a product and increase your profitability and sellability. If you want to determine if your business is sellable, you can take an online survey at www.exitarchitect.com. Just click on the ValueBuilder link – Get Your Score.
I can’t imagine what life will be like after I leave the business.
One of the biggest exit planning obstacles is the acceptance that the time to exit the business and begin a new phase in life is fast approaching. Often the owner does not have a clear plan on what he will do after he leaves the business and therefore avoids planning altogether.
I don’t have time to develop an exit or transition strategy.
It is certainly easy for an owner to stay focused on short-term problems and issues of the business. But without proper exit planning it is likely that the owner will not maximize the value of their business and may not be able to best control when and how they exit. Many owners wait too long to exit and reduce the value of their business to potential buyers. Knowing when and how to sell is an important part of exit planning.
I don’t know how to start the process or whom to call.
There are many different professionals who can provide guidance on how to create an exit or transition plan. Talk to your accountant, a business broker, or a certified exit planner about getting help. You can also check out www.exitarchitectacademy.com, which has valuable information about exit planning.
I know I need a plan, but I can do it later.
Delaying to plan is often the same as not ever planning, because the owner continues to delay year after year. If your strategy is to transfer ownership to another family member, this requires careful planning, training, and communication. If your strategy is selling your company, the typical time frame is at least 4 years ahead of your planned exit date. This is comprised of two years of planning in advance of the sale, one year to find a buyer and execute the deal, and at least one year the new owner will likely want you to remain with the business.