Don’t waste the opportunity to plan your exit strategy now
Business owners are facing a number of new challenges. Labor shortages, health mandates, government regulations and increased taxation. But I suggest that the biggest challenge facing business owners right now is their eventual exit from the business.
Baby boomers still represent most of the independent businesses in our country. Today’s youngest baby boomer is 57 years old. According to the 2016 Exit Planning Institutes (EPI) Homeowner Readiness Survey, 4.5 million homeowners said they intended to make the transition within 10 years. Almost 50% of those polled in 2016 intended to quit within the next five years. Many of these outings have been suspended for obvious reasons. Nevertheless, these outings will eventually take place.
The forthcoming wave of releases will far exceed the number of willing buyers. According to the EPI survey, 70 to 80% of private companies that tried to sell in 2016 did not sell. Additionally, for those who view their business as a “family business”, which most private businesses are, their success rate is no different. Only 30% survive the transition from the founding generation to the second generation, 12% from the second to the third and only 3% have successfully made the transition to the fourth.
Don’t wait until you think you’re ready to make the switch to start educating yourself about your options. In my experience, few homeowners are willing to consider educating themselves about their transition options until they decide they are ready to transition. This is the lost opportunity!
Most owners have 80-90% of their equity tied to their business. This is a huge risk to their wealth accumulation plans. In Stephen Covey’s book, “The 7 Habits of Highly Effective People,” Habit # 1: Be Proactive – Focus and act on what you can control and influence, rather than what you can’t. Habit # 2: Start with the end in mind – Define clear measures of success and a plan to achieve them.
The baby boomer tsunami will eventually affect the market value of your business. Don’t risk losing the opportunity to convert your illiquid equity into cash for future income and financial security.
Jan Graybill is CEO and Managing Partner of the Allentown-based companyLegacy planning partners, which he founded in 1999. You can reach him at[email protected].