Top 5 Reasons Business Owners
Don't Plan Their Exit
[fname], business owners today are just starting to recognize that there is
a unique service to help them with the exit planning process. I offer this
information in an effort to help you, the business owner, continue to
think positively in the direction of protecting your largest asset by
doing this form of planning.
The top five (5) reasons that owners do not plan their business exits are
that business exit planning can be:
4. Highly Emotional
It has been said that in order to address an issue you must first recognize
it. And, you cannot manage that which you cannot measure. I hope that you
can recognize and take a self-assessment as I discuss each of these five (5)
reasons why owners do not pro-actively engage in this form of planning. My
hope is to have owners identify with these concerns and be pro-active in
planning for their business and personal needs.
Planning is Inconvenient
In general, looking ahead to address a problem that does not exist today
does not make it high on an owner's 'to do' list. Formal planning,
consistently seeking professional advice, and writing checks to go through
an extensive process are simply not activities that owners undertake on a
regular basis. It is likely that these owners at some point in their career
were let down by an advisor who did not deliver on their promises – that is
very inconvenient and expensive for an owner both in terms of money and
time. It is unfortunate, however, if an owner paints their 'exit advisors'
with the same brush because this is specialized knowledge that is very much
needed for that owner's personal and business security.
A different level of inconvenience is disrupting an owner's lifestyle. In
this case, owners simply fall into a pattern whereby they live day to day,
enjoying the benefits of being owners of a successful business. Why disrupt
this lifestyle with thoughts and actions geared towards leaving it? It is
human nature not to stop doing something that we enjoy doing (except, for
example, quitting smoking). Therefore, owners by and large do not have the
incentive to be pro-active with this type of planning – leaving them to only
do this planning when they are faced with a calamity. Many owners also
think, 'why should I pay someone to help me stop doing what I enjoy?' From
these examples we see that exit planning can be very inconvenient to an
Planning is Disruptive
When considering a change in ownership of the business it is immediately
recognized that changes to the business will occur and this goes against our
human nature of avoiding change. Once an owner starts down the 'exit path',
it sets in motion a series of thoughts and actions that are going to
challenge the owner and their business. Most owners prefer to be challenged
with the daily running of their businesses. However, when an owner honestly
considers the changes that a future owner is likely to make with their
business, they realize that they need to make some tough decisions with how
the business is run. Simply put, change goes against our collective human
nature, so we resist it.
Planning is Complicated
Complexity is a given in this type of planning. Anytime that you mix
business and personal planning while simultaneously addressing an owner's
standing in their community and potentially disrupting many of their
cherished relationships, there are going to be challenges. Owners who are
candidates for the exit planning process generally are asking themselves how
they can get the equity out of their businesses without too much disruption,
while satisfying the largest number of people possible (including the
managers who helped to build the business). The complexity can seem too
great to tackle so most owners do not try.
Owners who are open to heading down the path of exit are next confronted
with the issue of the transaction's complexity. Owners need to navigate
valuation issues, identifying the best next owner of the business,
forecasting the future of the business, running a process to communicate
this 'future value' to the next owner, negotiating a transaction, figuring
out not only how much they will get paid but when they will get paid,
assessing the tax implications of the deal, and finally trying to figure out
if, when the deal is done, they will have enough to maintain their
lifestyle. All said and done, this is a substantial challenge for any owner
to tackle on their own.
Planning can be Highly Emotional
Owners identify very strongly with the businesses they have built. Owners
take pride in their companies and when confronted with separating from that
business, they are forced to ask themselves tough questions, such as 'what
will I do with my time?' and 'who will I be when I am no longer the owner of
this business?' Also, the thought of an exit is subconsciously aligned with
death. Many owners 'quietly' view the exit planning process the same way
that they see their own estate planning – as something that is great, coming
to an end. Resolving these personal issues is critically important and a
highly emotional process.
Planning can "Untrustworthy"
Many owners consistently receive poor and incomplete advice from their
'trusted' advisors. 'Trusted Advisors' come in two (2) different forms.
First are the advisors that an owner pays and next are the 'friends and
family' that the owner turns to for advice. Owners receive poor and
incomplete advice from both forms of 'trusted' advisors, many of whom are
well intentioned but have no training or experience with going through an
exit planning process. First, the rule of thumb to follow from a
well-intentioned friend who is giving you advice on your exit is to try to
take advice from those with experience in exits and/or have gone through a
transaction themselves – not from a friend who is trying to be helpful but
is not knowledgeable of the process.
For owners who are untrusting of the exit planning process, remember that
your advisors do not, and will not know what you really want to achieve with
your exit unless and until they ask you and you tell them. Without knowing
your goals for an exit, they cannot provide you with comprehensive advice.
Therefore, in today's marketplace we see many well-intentioned advisors
providing 'technical' solutions that do not necessarily equate to
comprehensive 'exit planning'. Remember that exit planning is a process that
can be trusted but when advisors begin with the solutions before following a
process, they provide poor and incomplete advice.
I hope that this newsletter helps you to see why most owners do not plan for
their business exits. In doing so, it is our hope that you see yourself in
these examples and that, in doing so, you are empowered with the idea that
planning your business exit is critically important and not as difficult a
task as it may initially appear to be. Of course, taking the first step is
always the most difficult but our office is available to assist with helping
you to do just that.
As always if you need some advice, you're
welcome to email me of call me here at the office at 281-993-4530.
Charles Wilson, CPA/CFF, CGMA, CBEC
Charles Wilson, LLC
307 S. Friendswood Dr, Ste B-2
Friendswood, TX 77546