Our experience as exit planning consultants reveals that many owners fail to leave their business in style.
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Indeed, the most common triggers for an owner leaving a business include burnout, illness, cash flow problems, and adverse market conditions.
Needless to say, exiting a business for these reasons is not the right way to exit a business. In these instances, the business sale price is much lower than it could be, and, in the worst case, there is no exit at all – the business simply closes down.
In contrast, business owners who approach exit planning systematically and methodically tend to maximize their business sale prices and sell out on their own terms. Yet, these thoughtful business owners, who typically end up enjoying a very comfortable retirement as a result of exiting their businesses, are in the minority.
So why do smart, careful, and successful owners fail to develop an exit plan that will allow them to sell their businesses and benefit from their lives' work?
There is no single reason for a business owner's lack of preparation relative to business succession. In fact, there are many reasons why business owners fail to prepare an appropriate exit plan.
Reasons cited by business owners for their lack of exit planning include:
- I'm Too Busy To Think About Exit Planning With the day-to-day headaches of running a business, many business owners procrastinate on defining their exit plans. In the end, they may never create an exit plan for the company.
- What's The Hurry? I Can Deal With Exit Planning Later Many business owners believe there will be plenty of time to take care of things once they decide to sell the business. In fact, exit planning should start years before a business owner actually decides to sell.
- It's Too Much Too Think About Some business owners are overwhelmed with the thought of exiting their businesses. In fact, exit planning is a task that is "hard by the yard, but a cinch by the inch" – a good exit planning consultant can help a business owner to develop an exit plan that comprises numerous small and very manageable tasks.
- I'm Not Ready to Move On Many business owners we talk to can't envision themselves moving into the next stage of their life. They don't have any defined personal goals outside of running the business. Since running the business forever is not a viable option, it's important for business owners to think through what they'd like to do after an exit.
- This Is My Baby. I Can't Envision Somebody Else Running the Business It's very common for business owners to have strong emotional attachments to their businesses. Letting strong emotions get in the way of proper exit planning, however, is a big mistake that can lead to bad results for the business owner and the business they love.
- How Hard Can It Be? Some business owners believe that "it will be easy" when the time comes to sell their businesses. The reality is that most business owners only sell a business once. As such, it is not something that they are familiar with and it is far from easy.
- No Successor Can Run This Business. In some instances, business owners have a lack of confidence in the abilities of a prospective successor. As a result, they delay exit planning. In fact, this concern should be the rationale for accelerating exit planning. That's because proper exit planning ensures that a successor will be able to run the business well.
- I'm Worried About the Conflict That Will Result From Exit Planning Discussion. Business owners often want to avoid the conflict that might result from exit planning activities. In family businesses, this is particularly common as owners do not want to raise difficult issues that might lead to conflicts between family and other key employees. However, addressing these concerns early often avoids conflict later and ensures that the conflicts do not jeopardize the business.
- I Don't Know How to Create an Exit Plan. Perhaps the most common reason given for not exit planning is that most business owners do not know how to start the process. The art of exiting a business is not something that is well-documented. It is best served by bringing in outside counsel that has broad experience in exit planning issues.
Whatever the reason for not focusing on exit planning, the result is a tragedy of the worst possible kind. Rather than exit at the right time on their own terms, most business owners sell at the wrong time for the wrong reasons, leaving money on the table.
It's one of the great ironies of business. A business owner can be amazingly talented at starting, running and growing a business, yet that same individual may be woefully unprepared to reap the rewards of all that effort by selling the business for a good price when the time comes to exit the business.
How Exit Planning Consultants Can Help
Exit planning consultants work closely with their clients to make sure that business owners exit their businesses successfully.
Typically, the process starts with a no-cost consultation in which the exit planning consultant actively listen to the business owner's goals and concerns, and then provides an initial assessment of the company's "succession readiness"— including a gap analysis on what's not in place that should be in place to ensure a successful business exit strategy.
Every business is unique, so the recommendations vary for each company. Based on the company's specific circumstances and needs, exit planning consultants then work closely with the business owner and his or her advisors to get the company on the path to a successful exit.
Given everything that is at stake, engaging exit planning consultants is something that every business owner should do, and it's critically important to do it years before you expect to exit the business.