All business owners will eventually exit their business by selling to the highest bidder, closing down through a liquidation, passing to a successor, or, unfortunately, dying without a plan for what happens next. The State of Owner Readiness survey from the Exit Planning Institute indicates only 20 – 30% of private businesses put on the market are able to successfully transition, and 75% of business owners who did sell profoundly regretted the decision 12 months later.
The simple truth is that the majority of business owners do not have a plan for their eventual exit. Part of the challenge may be that many view exit planning as an isolated, future event that maximizes the value of the business at the time of exit while minimizing taxes and ensuring the owner is able to accomplish their goals in the process. This frame of mind may be partially what is contributing to few business owners successfully selling, and the fact that those that do end up dissatisfied.
CCMI was founded on working with business owners, so we have seen a range of business exits. As I recently completed the Certified Exit Planning Advisor certification, I came to understand that many business owners could benefit from evaluating their mindsets with regard to exit planning. While there are many definitions of what an exit plan could be or is, the definition I like the best comes from Christopher Snider’s book, Walking to Destiny, in which he defines exit planning as simply a good business strategy. He shares that exit planning is a combination of “the plan, concept, effort, and process into a clear, simple strategy to build a business that is transferable through strong human, structural, customer, and social capital. The future of you, your family, and your business are addressed by exit planning through creating value today” (italics mine). What I want to emphasize about Snider’s words are that exit planning is strongest when the owner evolves his or her mindset from a “point-in-time approach” to a dynamic process where the business is prepared for an eventual exit.
What do I mean by that? I’ve seen several business owners create powerful exit strategies. By and large, their mindsets reflect the points of view on the right in the table below. On the other hand, business owners who are left unprepared tend to have the mindsets on the left.
A key point as you explore your exit-planning mindset is that the successful mindset will allow you more freedom to choose whether to grow or exit continually, rather than only getting one shot at the exit strategy. If you start with this simple paradigm shift for exit planning (especially if it hasn’t been on your mind), you will likely be better prepared for your eventual exit while building your business along the way. We will continue to explore various components of the exit planning process in future months.
CCMI is here to help you evaluate how your personal finances and future life fit into your exit plan. Let one of our advisors know if we can help you prepare for a future exit from your business.
CCMI provides personalized fee-only financial planning and investment management services to business owners, professionals, individuals and families in San Diego and throughout the country. CCMI has a team of CERTIFIED FINANCIAL PLANNERTM professionals who act as fiduciaries, which means our clients’ interests always come first.
How can we help you?