After 30 years of working closely with Northwest business owners, I’ve made some interesting observations. Every business owner will someday exit their business, either voluntarily or involuntarily. On the day of your inevitable transition, you will want to achieve specific business or personal objectives: Typically financial security is the first objective discussed. In my experience, most owners do very little proactive planning and thus don’t create a strategy to move closer to the all-important goal of long-term financial security. The four excuses I have heard most frequently to justify their exit planning procrastination are as follows:
- My business isn’t worth enough to meet my financial needs. When it is, I’ll think about leaving.
- I will be required to work for a new owner for years.
- I don’t need to plan. When the business is ready, a buyer will find me.
- This business is my life! I can’t imagine my life without it!
Let’s look at the initial obstacle that prevents most northwest owners from making the essential plans to sell their businesses and transition into the next phase of their lives.
Excuse 1: The Business Isn’t Worth Enough to Meet My Financial Needs.
“When my business is worth what I need, I’ll think about leaving.” This is a typical and somewhat reasonable statement: Why invest time, effort, and money to design an exit plan for your business when you cannot do so today? Why not delay until it is at least theoretically an option to leave to begin the Exit Planning Process? Consider the following example:
At age 45, Jerry dreamed of the day he could leave his company. The past five years that Jerry had spent reducing expenses, budgeting, and developing new marketing strategies on a shoestring budget had taken their toll. Nevertheless, Jerry kept his nose to the grindstone, fully confident that if he worked hard enough, the exit he dreamed of would take care of itself.
Fast forward five more years: Jerry has remained stagnant, dreaming more frequently but doing nothing to bring about the day he could walk out the door. What had changed was that Jerry had reached his 50th birthday, a benchmark he had set years earlier as the day he’d leave the business behind. During the five years Jerry spent working in rather than on his business, he missed the opportunity to do the following:
- Clearly establish his personal exit objectives and goals.
- Create an exit plan (based on his goals) that would identify the most productive actions he could take to create and protect value, and to do so in the most tax-efficient way possible.
- Drive up business value to the point where he could sell, pay taxes, and exit with the amount of cash necessary to achieve financial security.
What owners know to be true but often fail to act on is that growing value usually does not occur unless owners focus their efforts on specific behaviors that move their businesses measurably toward their ultimate goals. In failing to act on what they know, owners don’t create or implement Exit Plans and thus are never able to exit on their terms.