“WHY DON'T MORE BABY BOOMER BUSINESS OWNERS PLAN FOR THEIR EXIT?"
I frequently get asked this question by advisors in the banking, accounting, legal, and M&A world. In their positions, they see firsthand the devastating impact lack of planning has on the business owner, their employees, and loved ones when the company they worked so hard to build either fails to sell or does not command the value they expected.
When an estimated 80% of businesses that go to market do not sell, WHY is it so hard to convince owners to plan and prepare?
In my experience, the answer is usually more emotional than logical.
For many baby boomer business owners, their business represents a lifetime of hard work and dedication. As a result, they may be emotionally attached to their business and find it difficult to let go or plan for its eventual exit. In addition, the thought of exiting is scary for many business owners. “I’m not old enough – I’m in good health.” “If I stop working in my business, what am I going to do?”
These emotional roadblocks play out in many ways such as:
Lack of Time: Running a business is time-consuming, and many baby boomer business owners find it challenging to carve out time to focus on exit planning. Additionally, they may feel that they have more pressing concerns to address, such as day to day operations or juggling immediate business challenges. What these business owners don’t realize is that freeing up time to focus on building a business they can exit is the same work they need to do to build a more valuable business today. And, by focusing on it now, they can benefit from running a business that can operate without them today and enjoy the rewards now as well as upon exit.
Complexity of Exit Planning: Preparing for the exit of a business can be a complex process, involving legal, financial, and operational considerations. Baby boomer business owners usually do not have the expertise or knowledge necessary to navigate this process and may feel overwhelmed by the prospect of exit planning. Exiting a business usually happens once in a lifetime. Engaging exit planning professionals to help guide the process and provide a plan that can be executed in manageable chunks can eliminate that complexity. It’s essential to start planning early because it takes time, but it doesn’t have to be overwhelming.
Lack of Knowledge: Most business owners are not familiar with the range of exit options available to them or may not understand the implications of each option. This lack of knowledge can be a barrier to exit planning and may result in missed opportunities to maximize the value of their business. Many times, this lack of knowledge causes business owners to do nothing. Why? Because it’s not staring them in the face or knocking on their door like customers, employees, and vendors. It’s not urgent, but it’s critically important. I’ve said many times that I’m batting 100% when it comes to business owner transitions. Every single time, the way the business owner said they were going to exit is not how they exited. Why is this? Because they didn’t know all the options. And running parallel paths to exit provides the owner more options.
Financial Concerns: Exiting a business can have significant financial implications, and baby boomer business owners may be uncertain about their financial position or how to prepare for retirement. This uncertainty can be a barrier to exit planning, as business owners may feel that they need to focus on financial stability before they can consider exiting their business. Part of the process of planning for an exit is to get an understanding of where you are financially and identify the gap in your current financial situation and what is needed for retirement. Without engaging in this planning, you will never know whether you are financially ready to exit.
Succession Concerns: Many baby boomer business owners are concerned about finding the right successor for their business or feel that there is no one within their organization who can take over. This concern can be a barrier to exit planning, as business owners feel that they need to wait until they have identified the right successor before they can consider exiting their business. This approach is very risky for the business and the business owner. Recently, I was working with a client who identified a successor they had been grooming over the past four years. That individual decided to leave, which left the business without a successor. Fortunately, for this business, it didn’t prevent them from moving forward with other exit options, as they had been running parallel exit paths over that time frame. Had they not been planning well in advance; this could have been catastrophic for the business and the owner’s exit plan.
Clearly there are many reasons why business owners may not plan and prepare for the exiting of their businesses. By understanding these barriers and the emotions that are a natural part of the process, business owners and their advisors can develop strategies to overcome them and ensure a successful exit.
But to be in control of your exit, you must take action. Without action, it’s just hope. And, with 50% of all business exits happening because of death, disability, divorce, disagreement, or distress of the business, how much of a bet do you want to make? Start planning now to turn the odds in your favor.
If you want to learn more about building an exitable business, attend Business Owner Boot Camp on June 7th!
BUSINESS OWNER BOOT CAMP
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June 7, 2023 | 8:00AM-4:00PM
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Jayne McQuillan, CPA, MBA, Certified Exit Planning Advisor (CEPA) is the owner of Journey Consulting, LLC
Our firm is focused on providing business owners and their businesses with strategic planning, exit planning, financial expertise, and organizational improvement. We use a holistic approach within all of our services by aligning leadership with business strategy and outcomes.
Schedule your free consultation call today!