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Monthly Business e-Tips Vol 6
Issue 3

Planning for a Future Exit - Part 1 - The High Cost of Procrastinating


"Few men of action have been able to make a graceful exit at the appropriate time."

Malcolm Muggeridge

We dedicate years of study to qualify for our chosen careers; we save diligently for our children's education; and we conduct thorough research for our business decisions. Yet sadly, we devote little time preparing to leave what we've spent decades nurturing. An exit entails more than the succession or sale of your business. When it is planned for properly, it involves structuring your business for more choices and profit.

Exit Planning Exchange (XPX) Summit 09 was held last week. The focus of the conference and organization is to educate professionals who help clients prepare for business exits, while facilitating collaboration among advisors. Many of the speakers, including me, noted how frequently we encounter business owners who are reluctant to plan for their exits. With baby boomers turning 60 years old, analysts predict that in the next five years we will witness a turnover in the ownership of fifty percent of businesses. How many of those companies have started preparing for this change? The answer: only about twenty percent.

By not preparing for this rite of passage, you risk—at a minimum—leaving considerable money on the table. You also chance the chaos of a sudden, unplanned exit. Death or disability of the head of a family-owned business has been known to create relationship-dissolving conflicts. Finally, financial security built over decades can be swiftly undone.

These risks demonstrate a solid case for preparation, yet many business owners still neglect planning for the final phase of their business. They typically try to quickly unload their companies in six to twelve months, very often without success. The optimal time to develop an exit plan is five years in advance.

Here are some common barriers to exit planning and how to overcome them:

  • Disengage your identity from that of your business. Start separating years before the exit by expanding your other interests. Create a healthy work/life balance. By knowing who you are outside of your role at work, the transition will be easier.
  • Make your business less dependent on you. A business won't have worth in the marketplace if it's poised to disintegrate when you depart. Position your company for sustainability by delegating to and training leaders and outsourcing what isn't core to your business.
  • Start mentoring a successor. In family businesses, owners often avoid choosing between their children or others to succeed them. Although these decisions are admittedly difficult, the longer they're unresolved can lead to the ruination of family relationships and be catastrophic to the business. The next leader needs time to be groomed to ensure the continuity of your business and its legacy.
  • Deal with your own mortality. Many people don't plan because they don't want to think about possible incapacitation or death. But if you become disabled or die suddenly, you will leave your business in chaos and your family vulnerable. Force yourself to plan ahead for their sake.
  • Become realistic. Advisors try to manage owner's expectations of a business exit. If you aren't reasonable and are ill-equipped, you will be among the seventy percent of businesses that never sell. Adjust your attitude and plan for a good outcome.
You probably bought life insurance when your family was young. Similarly, you need to protect your business from a disruptive exit. Build it for the optimum value so that you have options: whether passing it on to the next generation, transferring ownership to family members or employees, or selling it to an outside buyer. Although exits are always emotionally charged situations, they can be bittersweet and successful if you prepare carefully in advance.

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