My continuing education about business, work, and the workplace recently shared an interesting piece of data with me. That data was only 20% of businesses that go on the market are sold. Further, of those business owners who sold their business, 72% did not know or did not think the sale of the business will impact their lifestyle.
Think about those two points. The average business owner has 80-90% of their personal wealth tied up in their business. About 20% of them can take physical possession of that wealth through a sale while 80% will have to find another way. What should each of these business owners do to improve those outcomes? What can they do to become part of the 20% and equally important, what can be done for the remaining 80%?
What can a business owner do to successfully transition their business when the time comes? Owners have several options. They can;
- close the business and go home
- sell the business and do something else
- keep the business, hire someone to run it, and collect a profit check every month
- transfer the business to your children or other family members.
Each of these options has positives and negatives. Some businesses simply won’t sell. In those cases, closing might be the only option. However, that isn’t a good option if someone can be hired to run your business while you enjoy the profit from it.
In many respects, passing the business on or selling it requires the same sort of planning; many will state that each plan is highly personal and unique, yet common elements exist for both. The common elements are:
- The plan you have for yourself specifically
- The plan you have for your family after you leave the business
- The plan you have for the business
There are many variables included in these steps. That is why it is strongly encouraged everyone who owns a business should consult with their:
- Business Advisor/Consultant
- Accountant (not that same as a Business Advisor/Consultant)
- Financial Planner
Navigating the process of passing on or exiting a business without the active involvement of all five of those experts is a recipe for a bad business transaction when the time comes. Unfortunately, slightly less than half of all business owners will consult no one. The exit of your business is not an activity a business owner can or should do alone. Do not make the mistake of engaging with only one or two of these expert advisors. You will need them ALL.
When the time comes is also an issue. An exit plan is not a last-minute decision, a 6-months before I do it decision or even a 1-year decision. The process of an exit is commonly a five or more year process. If a business owner wants to move on in 6-months, that doesn’t mean it is too late to start planning now. It simply means that the costs of time, energy, and resources (money) will be significantly higher and the outcome will not be as profitable for the business owner as if they had started five years ago. None of the experts mentioned above can work miracles but, never the less, a successful plan will need them all, more so if the need to exit is immediate.
Regardless of whether or not you choose to sell or pass on the business, or continue to run it yourself, the steps recommended for you to take NOW to plan for your eventual departure are:
- Find a Business Consultant to help you improve your business performance to its best possible level.
- Involve your Attorney, Banker, and Accountant.
- If you are passing the business on to a family member, choose who that is now. Given the emotional aspects of choosing among family members, your Business Consultant can help with the selection and development of this person.
- If you are considering hiring a nonfamily member to operate your business, work with your Consultant to develop a list of the necessary knowledge, skills, and abilities this person must have to operate your business.
- Develop a formal training program for your family member or successor, if needed.
- Establish a timetable for the handoff of your business to the family member or external hire.
- EXECUTE YOUR PLAN!!!
If you have done all of the steps and afforded yourself enough time to plan it well, the execution of the plan can be as simple as handing over the keys to the business. Having a well-prepared plan is critical to this final step. You can learn more about this process as well as assess your own preparedness for a transition by downloading our free ebook Planning Your Business Exit.