We have all heard of the impending silver tsunami. The crashing sound of the baby boomers rushing to the exits to enter the world of retirement.
It is estimated that the boomer generation will transfer $25 to $30 TRILLION dollars in wealth over the next 20 years. The greatest generational transfer of wealth in history.
Approximately 60% to 65% of that wealth is tied up in privately held businesses.
As if these numbers weren’t staggering enough, research indicates that 49% of business owners have no transition plan at all.
5 Truths about Business Owners
In my years of experience working with business owners, there are 5 things I know to be true about business owners:
- Generally, we do not do a good job in planning. Our businesses consume our lives and we always think next week will be better and we will get to the things we let slip this week.
- The majority of our net worth is usually tied up in our business.
- The majority of business owners view the sale of the business as a transaction, not as a process or an integral part of their overall business strategy.
- Many business owners don’t truly know the value of their business, so we enter the sale process with unrealistic expectations.
- Many business owners are unaware of the various exit options available to them.
Because business owners don’t know the value of their business AND because they view the sale of the business as an event and not a process, they miss the opportunity to significantly increase the value of their business. There is a tremendous need for business owners to be educated on the Exit Planning process.
As I mentioned earlier, the sale of your business is not a singular event. Regardless of the price you ultimately get for the business, it is imperative that your business, financial and personal goals are in alignment.
A survey conducted by the Exit Planning Institute revealed that 70% of business owners regretted selling their businesses within 6 months of the sale of the business.
Why? Do you want to take a guess?
Well it wasn’t because of the price they received for the business.
It was because they had no idea what to do with themselves. They had no plan for what life would look like after they sold their business. As a business owner, we routinely work 50, 60 hours a week. Then we sell and we have this HUGE block of time to fill. There is only so much golf you can play. You need to define your purpose post sale before you think about selling.
Another mistake business owners make, going back to my point about poor planning, is that we fail to have a detailed financial plan prepared for us prior listing the business for sale. We usually underestimate how much our businesses support our lifestyle. Having an understanding of how much you need to maintain your current lifestyle; and how long what you receive for selling the business will last; is the cornerstone of the Exit Planning Process.
To give yourself the best opportunity for a successful exit, you should start the exit planning process 24 – 36 months prior to when you would like to list the business for sale.
I would challenge all business owners to consider a soft exit plan even if you aren’t currently considering a sale of the business.
Statistically, 48% of all business sales are unplanned sales driven predominantly by one of the following 5 reasons:
- Disagreement among partners
- Distress of the business
These statistics alone make a strong case that planning your exit sooner rather than later is a prudent business strategy.
If you made it to the end of this article, good for you, it means you are thinking seriously about protecting your largest asset. So here are 5 key takeaways to keep you on the path to a successful exit.
- It takes time to get ready.
- Better prepared means more options and better price.
- Plan for the unplanned.
- Early start means more time to consider life after the business.
- Proper time available for Tax, Estate and Financial Planning.