Why So Many Exit and Succession Planning Articles?

Business CompanionIt seems like every time I open the paper or my iPad, I’m overwhelmed with articles on exit planning and succession planning. Why is that? Business owners have exited their businesses and put succession plans in place since the beginning of, well, business. Why does it suddenly seem so urgent?


It might feel like the latest trend in consulting that will eventually fade away, but I believe there’s a good reason for all of these articles and a good reason for business owners to take them seriously. It’s more critical than ever that business owners spend time exit planning and succession planning because millions of baby boomers have created the next economic bubble. It’s called the Exit Bubble®, and developing a solid exit or succession plan will help business owners get the highest return on their investment when they decide to leave their business.

 

So, what is the Exit Bubble? There are five million baby boomer business owners who will be exiting their businesses over the next five years. That is an unprecedented transition of businesses and wealth. Who will be the next owners of these businesses? If you’re planning to sell, some are estimating that there will be 3 sellers to every potential buyer resulting in only the best companies selling. If you’re hoping to transition it to the next generation, look at historical statistics – only 30% of family businesses survive into the second generation and only 12% survive to the third generation. Those statistics will likely get worse as the more “traditional” businesses are not as appealing to this next “technology-driven” generation.

Even given the challenges of the Exit Bubble, only 25% of business owners have begun to plan for how they’re going to exit their business. Why is that? Here are a few theories:

  1. They don’t know where to start.
    Business owners are great at running their businesses. They are in control and feel confident they can make good decisions. Exiting a business is not something most of them have done before and will likely only do once. If they don’t understand the exit process, it’s difficult to know where or how to start planning for it. When faced with spending time learning something new or focusing on their business, human nature will lead to focus on what they’re confident doing. It’s a challenge for business owners, but spending time early can yield significant returns when they exit.
  2. Planning for the “end” is uncomfortable.
    It’s never easy to plan for the “end” of something. It might feel like you’re not totally committed to it or you might somehow jinx it. If you’ve ever written a will, purchased life insurance, or even drafted a prenuptial agreement, you know how uncomfortable it is to address the possibility that something will end or change even though you knew it was necessary. Planning how and when you exit your business might feel uncomfortable, but it is how business owners can maximize the return on their investment of all of those years of hard work. Business owners owe it to themselves and their families to start planning now, regardless of when they expect to exit their business.
  3. “Business Owner” is the loneliest job in the world.
    A business owner is the person with all the answers (at least that’s what everyone assumes). When they’re struggling to make payroll or they’ve had to mortgage their home to ensure the company continues, who could they talk to? The same issue applies for planning to exit a business. Business owners often do not have a support group who can help them through sensitive issues such as selling their business. Online resources can be accessed when and where it’s convenient for the busy business owner and are a good way for business owners to get started with their exit planning process.

The next time you see an article on succession or exit planning, give it a read. The more you can learn about the process, the more likely you’ll feel confident making good choices when it’s time for you to exit your business and move to the next phase of your life.

 

By Tensie Homan