Are you ready for the $10 Trillion Dollar Opportunity?
Updated: Jan 9, 2019
The greatest wealth transfer in human history is underway and is expected to last for the next 10+ years. As the baby boomers have begun to retire, demographic experts predict that one out of every two businesses will change hands. This represents a transfer of over $10 trillion dollars in wealth. Unfortunately, the clear majority of business owners will not be able to harvest the value in their businesses.
The United States Small Business Administration estimates that only 20% of privately held businesses available for sale each year are successfully sold. More startling, twelve months after selling, 75% of business owners profoundly regretted their decision.
In dealing with many of my clients, there are always reasons why not to prepare an exit plan. Yet, preparing your exit is the best thing you can do for yourself, your family, and your employees.
Although all exit plans need to include contingencies for illness, burnout, divorce, and death, the purpose is to maximize the value of the business at the time of exit, minimize the amount of taxes paid, and ensure that the owner can accomplish all of his or her personal and financial goals in the process.
However, failure to create a well-defined exit plan virtually guarantees that the business owner will:
Exit their company as a result of pressure from outside circumstances, not of their own desires
Exit their company on a timetable that is forced on them, instead of one that meets their needs
Undervalue their company and leave hard-earned wealth on the table
Pay too much in taxes
Lose control over the process by being reactive, and limiting their exit optionsFail to realize all of their personal and business goals
Suffer unnecessary stress
Watch a lifetime of work disintegrate as a result of poor business continuity planning
Lose confidentiality during the sale or exit process
On the other hand, putting in place a well-designed and implemented exit plan enables the business owner to:
Control how and when they exit
Maximize the company value in good times and bad
Retain control of the process by developing a number of strategic exit options
Ensure they achieve all of their business and personal goals
Reduce stress, not just for the owner, but employees and families
Ensure continuity of the business
When it comes to talking about our own mortality, and specifically, the loss of identity that has been attached to the business, it’s human nature to avoid the unknown. Yet, exit planning is essential to putting a close to one chapter and opening the door to a new one.
So, why else do business owners not create an exit plan.
Exit planning is time consuming. Working 60-80 hours per week, and balancing their personal demands, it’s no wonder business owners don’t feel they have time to create a comprehensive exit plan.
Exit planning is complex and very few resources exist to guide a business owner step by step through the process. Ignorance of the process, combined with the knowledge it must be done sooner or later, can create a lot of tension for the business owner. If the business owner lacks the means to attack the problem head-on, he or she usually will sidestep it as long as possible.
Studies show that most business owners do not understand the tremendous returns investment in exit planning can provide them. A lack of understanding prevents them from weighing the benefits of doing something versus the costs of doing nothing. As a result, they favor the status quo.
There are many things in life that scare us because we’ve never done it or don’t know where to start. One of human’s greatest fears is the fear of the unknown.
“Many times, the thought of fear itself is greater than what it is we fear.”
― Idowu Koyenikan, Wealth for All: Living a Life of Success at the Edge of Your Ability
As I begin to think about my own retirement in the next 10+ years, the challenge isn’t around thinking about what I know, it’s about thinking about what I don’t know. What do I want my transition to look like, what happens if something unexpected happens to me in advance of my plan, what do I want to be doing with my life after transitioning out of the business, travel, a new business, etc. None of us have a crystal ball to the future, but the best thing we can do for ourselves, our families, and our employees is to plan for what we want, and make sure we have addressed those things we didn’t plan on.
Planning for your exit is your responsibility. Engaging a professional advisor that can help you assemble the right team to assist you in this process will determine your success. So, what are you waiting for?
Jayne McQuillan, CPA, MBA, CEPA is a strategic management consultant, and the owner of Journey Consulting, LLC, in Green Bay