According to the Securian Small Business Owner Life Stage Study, more than 50 percent of owners plan to exit their business over the next 10 years. Alarmingly, however, the study also indicated that more than 70 percent of those business owners do not have a plan and are not yet taking action.
Transitioning and exiting a business is a complicated process that can take multiple years to do right. In order to do so successfully, one must take a holistic approach to determine whether there are gaps in their existing plans or get their planning started by considering these four questions.
Am I ready personally?
For most business owners, 80-90 percent of their personal wealth is tied up in their company – so a failure to successfully transition their business can devastate their life savings and their life’s work. Developing a personal financial plan is an important first step and key to setting the owner up for success and a consistent lifestyle following the sale of their business.
Beyond the financial aspect of personal readiness, a business owner must also be mentally and emotionally ready to let go of the business. One critical step is to determine what a new life purpose is or will be – whether that be volunteer work, a hobby, grandkids, etc. – to help fulfill this next phase of the owner’s life and help them transition away from being involved in the business.
Is my business ready?
Another important step is better understanding the value of your business. While business owners may think they already know this, a recent study showed they are off by an average of nearly 60 percent when determining the actual value. This variable would obviously have a significant impact on their future plans.
In order to maximize the value and position the business for long-term success, the owner must also focus on building a strong management team, getting their business finances in order, and ensuring a viable strategic plan and proper governance structure are in place for the organization.
Is my business marketable and attractive?
While having a “ready” business is helpful for maximizing value, a successful sale is less likely if the business is not also marketable. For starters, begin considering things like the number of potential buyers for the business, the diversity of the customer and supplier bases, and the unique strengths of the company. Developing a firm pitch for the company’s unique market position is vitally important for a successful sale.
Is my family ready?
A large number of closely-held businesses are also family businesses, which adds another dimension of complexity. Many times communication about important subjects never happens in a family business and a separate forum is needed to allow for these discussions. In these meetings, which are often led by an experienced third party, families can also create policies and other governance structures to ensure the future success of the family business.
Considering these four critical areas is a start to evaluating your succession or exit plans beyond the financial or legal aspects. Identifying gaps and thinking holistically will protect and successfully position owners and their family’s futures, and that of their business and its many key stakeholders.