Fear, Focus, Readiness
Updated: Jan 9, 2019
I was recently asked, “Why do you think that business owners don’t plan for their exit?”
I think there are several reasons for this.
Fear – None of us like to think about our own mortality. The thought of not being in our business and continuing to do what we’ve done is a hard thing to think about.
Lack of Focus – Too busy focusing in the business that they don’t focus on the business.
Lack of Knowledge – Most business owners don’t know what makes a business transferable and what it takes to obtain the desired value upon exit. They’ve never done it before.
Lack of Personal Planning – Many business owners don’t have a lot of other hobbies, as their business has been their work and their hobby. They have no idea what they will do with their time once they’ve exited, and not more vacations, golf, or fishing, but truly what is going to give them purpose.
Lack of Personal Financial Planning – Most of their personal wealth is tied up in their business and they have not worked with an advisor to know what they truly need from the business to sustain their lifestyle into their next phase.
In working with businesses and business owners, the first step to demystify exit and transition planning is to look at the 3 legs of the stool: personal, financial, and business. Assessing the exit readiness of all 3 creates a process that makes the timing of an exit irrelevant. When you’re maximizing business value and addressing the planning components of your personal and financial readiness, you’re always ready for the unexpected, and the expected. It’s just good business strategy!
According to the State of Owner Readiness Survey prepared by the Exit Planning Institute, statistics show that 50% of business owners don’t determine their exit. Instead, one of the 5 D’s define it for them: Death, Disability, Divorce, Disagreement, or Distress. And, 40% of business owners have no contingency plans for illness, death or forced exit. In addition, 73% of business owners have no formal transition plan, and 48% have done no planning at all.
As a business owner myself, the reality of life changes recently hit home. Although not as devastating as death, my husband recently had surgery to repair a torn meniscus. Overall, not considered terribly serious and, in fact, quite common. However, I totally underestimated the impact on our daily routines. Ignorantly, I assumed that he would get through the surgery and, although there would be recovery time, I wasn’t anticipating that he couldn’t drive for several weeks, needed to be taken to physical therapy appointments, and couldn’t do anything around the house. I became a care giver and had to juggle my business and all the responsibilities around the house. Now it wasn’t my specific disability, but it impacted my ability to continue my daily business activities. Insurance wouldn’t cover the fact that he needed me to care for him during this time. Fortunately, I could adjust my client schedules and/or have another consultant in our office address the client needs.
This is a very simplistic example that has a short-term impact on my business, but what if this were a much longer-term illness or disability. Are you prepared for the unexpected?
None of us want to be the 50% who don’t decide our own exit, but to protect our businesses and our loved ones, we need to plan for both the unexpected and expected.
When you’re focusing on the 3 legs of the stool - personal, financial and business, with good business strategy, you are ready regardless of what life throws at you. Isn’t it just good business sense to plan “NOW” so that timing is irrelevant. You’ve invested too much in building your business to not plan for your exit.
Jayne McQuillan, CPA, MBA, CEPA is a strategic management consultant, and the owner of Journey Consulting, LLC, in Green Bay