Experienced runners would never embark on a marathon without adequate training. Taking on this physical and mental long distance feat shouldn’t be entered into lightly and without defined strategies for how to cross the finish line. The same can be said for the challenges small business owners face, which include launching, operating, growing and ultimately exiting their ventures at the end of their careers. Unfortunately, many business owners fail to thoroughly prepare for the last stage of the marathon – a successful sale or transition.
In our 25 years of experience counseling small business owners, we’ve found most of them are inadequately prepared for the succession or sale of their business. A recent Exit Planning Institute study confirms this, revealing that 70-80 percent of businesses put on the market don’t sell. This number should come as no surprise, considering 83 percent* of business owners lack a formal, written transition plan.
Taking into account these alarming statistics, we stress to our clients that exit and succession planning is no longer something to think about down the road. Business owners need to consider exit strategies throughout the lifecycle of their businesses to maximize enterprise value. By following best practices there is the potential to double the value of your business in a few years.
If you are nearing the end of your career, considering retirement or simply pondering the future, it’s important to keep in mind the following reasons why adequate preparation is integral to a successful sale or transition of your business:
Creates a roadmap for the transition process – Transitioning your business requires meticulous planning and attention to detail, so it is critical that owners understand the process from start to finish. Whether you are selling your enterprise or transitioning ownership to a family member, creating a roadmap will help identify opportunities for improvement and define value. From initial assessment and valuation to closing the deal, mapping out your exit plan requires a significant investment of time, often several years. Getting a jump start on the planning process will help business owners strike the appropriate balance between working in the business and working on the business.
Prepares for the unexpected – Forty percent* of business owners have no plans in place to cover a forced exit. When faced with unexpected life events such as illness, death or simply general fatigue, owners are often left without a second-in-command ready to assume all the responsibilities of running the business. While owners may find they have several good employees, these workers often lack the training and skills needed to lead the company. An exit plan helps identify potential successors and provides them with the appropriate preparation to take over if the unexpected happens.
Allows a seamless transition to life’s next venture – Challenges are inevitable during times of transition, but mindful exit planning can greatly reduce any obstacles. With attention, consistency and a proper strategy, small business owners can preserve their legacy and maximize the value of their greatest investment – their business.
As business owners, we understand how quickly day-to-day operations take priority, but we also know carving out time to connect with the right partners can make your life’s efforts pay off for you and your family.
*All statistics are from the Exit Planning Institute’s 2017 State of Owner Readiness survey.