Don’t Be One Of The 83% Without An Exit Plan
In 2013, the Northeast Ohio Chapter of the Exit Planning Institute conducted a survey titled, “State of Owner Readiness.” The survey was designed to assess how effectively owners have planned for the inevitable exit from their businesses. It revealed many interesting facts.
76% of the respondents plan to transition within ten years, and nearly 50% within three years. That being said 83% of owners either have no plan or have not documented it.
Two thirds are not aware of all their exit options. Those who have plans often neglect to share them with the most important people in their lives.
72% of respondents have no formal board of directors. 78% don’t have a team of advisers. Only 14% of owners have completed a “due diligence” project to de-risk the business, maximize its value and minimize its taxes. Many owners have not thought through the effects of who they’ll sell to, whether it will be an internal or external sale.
Most financial planners estimate that 85 to 90% of the net worth of the average business owner is tied up in the business, so owners need to move to a better outcome, but it appears they’re not.
The study draws conclusions and makes the following recommendations:
Business owners need to have an Exit Plan that is well documented and communicated to all relevant stakeholders.
The exit strategy needs to be integrated into the business strategy and internalized as a method for operating the business on a day-to-day basis.
Owners need to be educated about exit planning so they can understand and evaluate all available options.
Because it is unlikely that there will be enough capital to absorb all the outside transitions preferred by business owners, owners need to take a serious look at inside transitions: things like ESOPs, management buyouts and family transitions. If not, they may be forced to substantially discount the price on an outside sale, especially if they aren’t a high performing company. They may not be able to sell at all.
The Exit Plan and the Estate Plan need to be coordinated and treated together.
The personal aspects of a post-transition life of the owner are important. Owners need to have a clear idea of what happens for them, personally, after the exit takes place. What they do next must be resolved prior to going to market.
I took this survey into consideration and realized there are many opportunities for people with my skillset; I can be helpful. If the numbers I heard are true, only one in ten owners are going through a formal exit planning process. That means many are trying to go straight to market, thinking they are ready to sell. Unfortunately, when they find out they have things that need improvement, the business brokers and investment bankers are not equipped to help them. They often only sell businesses. So what happens? If the business is not ready to sell they might be bypassed for a business that is ready to sell today.
Who helps the business who isn’t quite ready, but has potential? I want to.
That’s why I put the free assessment tool on my website. Take the survey today, even if you are years from selling.
I’ll get the results and reach out to chat. If you are currently working with someone else, that’s fine. I can’t help everyone. If you have a relationship that works for you keep it. I’ll forward the results of the assessment without obligation and hope you get the help you need. It’s too important for you not to. This is your life’s work we’re talking about and you only get one shot.