All Business Owners EXIT their Business at Some Point
But not all get PAID
Many end up selling for less
Many are unable to sell at all
Many are unhappy after the sale.
But it doesn’t have to be that way. For those who do prepare, the rewards can be great. Planning for your exit doesn’t have to be stressful, but it does take time and focus: experts agree that an effective exit strategy takes 3-5 years to execute.
The following are examples of the value of starting your planning early:
Maximize the Value of Your Business –
- Increasing the value of the business – growing revenue and profits, optimizing operations, and enhancing client retention – can increase the multiple you get for your business. A score of 90+ on the Value Builder Assessment may get you offers that are over 7X higher than the average business.
Ensuring Your Financial Security –
- 70% of owners indicate they need the sale of their business to support their post-exit lifestyle. Planning for their post-exit lifestyle needs and wants early in the exit planning cycle can help inform strategies to create an abundant financial future that can sustain your desired lifestyle after the exit.
Smooth Succession and Transition –
- 87% of privately held businesses are family owned yet only 30% of family owned businesses go the 2nd generation and only one-third of family owned businesses have a documented and communicated succession plan
- Selecting and developing a successor and creating a personalized and focused development plan can ensure the business continues to thrive, retains its top clients and preserves the culture, and employee welfare after the Owner’s exit.
Having a Post-Exit Plan –
- 75% of former business owners have reported regretting the sale of their business a year after the sale. Some of the common reasons for the response is a feeling that they have a sense of losing their purpose, being bored or lacking the level of interaction with their colleagues and team
- Planning ahead for how to redirect your creative energies, knowledge, and experience into philanthropic activities, new business ventures, consulting and any number of other channels can address the emotional and lifestyle needs of the owner so that they can feel fulfilled without the business.
Minimize Taxes and Protect Inheritance –
- Owners often fail to understand the tax implications of a business sale and underestimate the tax burden or have strategies to minimize the taxes which could greatly reduce the net available to support the owner post-exit. Working with experts to develop options for the sale and a tax strategy can reduce tax burdens and preserve wealth.
- In addition 70% of Owners lack an updated estate plan or contingency plan and 50% of all exits are “unplanned” – (death, disability, distress, disagreement and divorce). Having an updated estate plan and contingency plan can help protect the Owner’s intent in the event of an unplanned exit.
Preserve the Legacy and Reputation –
- For many owners, Owners have invested their lives in their business and cherish the impact their company has on the community and their employees. Many of the exit planning elements can help preserve the legacy and reputation of your company post-exit and leave a business that continues to operate with integrity, positively impacts the community and carries forward the values and principles that you built it upon.
- Importantly, it appears that buyers see value in having a plan for, and thinking through, the employees well-being adds value, as much as a 17-21% improvement in business value.
In closing, 75% of owners in the US stated they would like to exit their businesses in the next 10 years – meaning 4.5M privately held businesses could transition. Reports show that many Owners have already stepped up to getting educated and planning for your exit. If you are of a mind to exit in the next 3-5 years, and have not started the process, we urge you to begin now while you still have time to address areas that may affect the value of your business and the net you can expect to get.
Sources:
2023 National State of Owner Readiness Report, Exit Planning Institute
Value Builder System, The Overlooked Owner
Various articles: SBA, National Business Capital and Services, Marcum, LLP, BizBuySell
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