Believe it or not, most owners do absolutely nothing to consciously plan and systematically move toward that all-important goal. Anecdotally, the four most common excuses owners use to justify delaying and eventually ignoring exit planning are:
1. The business isn’t worth enough to meet my financial needs. When it is, that’s when I’ll think about leaving.
2. I will be required to work years for a new owner.
3. I don’t need to plan. When the business is ready a buyer will find me.
4. This business is my life! I can’t imagine my life without it!
Today, let’s look at the first hurdle that prevents most owners from making the necessary plans to cash out of their businesses and move on to the next stage of their lives.
Excuse #1: It makes no sense to start planning when my business isn’t worth enough to meet my financial needs. When it is, that’s when I’ll think about leaving.
This is a common, and not unreasonable, assumption: Why spend time, effort and money to plan to leave your business when, today, you can’t? Why not wait until it is at least theoretically possible to leave to begin the exiting process?
At age 45, Jerome Rowling was dreaming of the day he could leave his company. The past five years that Jerry had spent trimming fat, watching every dime and developing new marketing strategies on a shoestring had taken their toll. Like the trooper he was, 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 and we find Jerry pretty much where we left him—dreaming more frequently, but doing nothing, about the day he will walk out the door. What had changed was that Jerry had reached his 50th birthday—a benchmark he had set years earlier—for 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:
• Clearly establish his personal exit goals and objectives.
• 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 upon, is that growing value usually does not occur unless owners focus their efforts on deliberate actions that move the company measurably toward their goals. In failing to act on what they know, owners don’t create or implement exit plans and so are never are able to exit on their terms.
Do you have a plan?
To avoid planning not only puts your future financial security at risk, it overlooks your company’s need to grow in value—efficiently and quickly—in carefully targeted areas. Growing and protecting value is at the core of exit planning. To identify where and how to spend precious company resources (your time and money) to make the greatest impact is a key exit planning task. It is just as important as identifying and implementing strategies to minimize current taxes and the tax bill when you transfer your company.
It makes sense to start planning for your eventual exit because you have to plan (and consistently take purposeful actions to implement your plan) if you ever want to exit in today’s (and likely tomorrow’s) economy. The simple reality is that most owners don’t plan and therefore most owners are never able to leave their businesses in style.
In our next post, we’ll talk about the other three most common reasons owners avoid planning their exits. If you have any questions or want additional exit planning information, please call us at (915)747-1658 or contact us online.
The examples provided are hypothetical and for illustrative purposes only and do not represent actual client experiences
Source: The Exit Planning Review™.