Every day from now until 2023, Boomers will turn 65 at the rate of about 10,000 per day. About 5 million are business owners. According to a recent Exit Planning Institute survey, the majority are planning to sell their companies in the next five years. Yet two-thirds have no formal exit plan or strategy. Over half believe they know the value of their companies but only 18 percent have actually obtained a formal business valuation report. Approximately, 93 percent haven’t made plans for the day after the business is sold or closed. Do you see the math problem here?
Some experts predict a flood of Baby Boomer businesses hitting the market at once. However, the pool of Generation X buyers with the available resources (cash, credit, experience) is considerably smaller than the Boomers. Also, the value systems of the two generations differ. Working long hours and doing it for twenty years is not appealing to many. What about the millennials? Most are not yet positioned with business-buying resources. Also, they may choose to start a company rather than buy an existing one. It’s too soon to know.
Stephen Covey’s oft quoted phrase “begin with the end in mind” is excellent advice for business owners. If you own a business, Boomer or not, you need an exit plan.
But what exactly is an exit plan?
It is simply the decision to manage and grow your business so it will create personal and financial freedom for you.
The first step in any plan is knowing where you are now and deciding where you want to go. An exit plan means that you will build your company to operate without you. It means identifying a successor whether that is a family member, key employee or outside buyer. It means putting systems and processes into place, documenting them, training your employees, and slowly removing yourself from the day to day management of the company.
I know what some of you are thinking. “Well, that just won’t work in my business. I have to manage everything”. While that may be true, if you want to sell your business during the Baby Boomer tsunami, you’ll want to make some changes.
Buyers want to purchase companies where the owner is not the biggest asset. If you have the knowledge, relationships, and experience in delivering your service or product, the pool of likely buyers is probably non-existent.
Most business owners have the bulk of their net worth tied up in the business. This means you don’t get it until you sell. And if you need it to retire or to do the next fun thing, make sure your business is sell-able. Get a professional business valuation today to find out how far you are from your goal. Talk to a business intermediary about likely buyers. You’ll also want tax-planning advice now because some strategies take years to prepare. Remember: it’s not the amount that you sell for, it’s what you get to keep!
Recently, I asked an owner when he planned to sell his business. He paused thoughtfully and answered with a concerned look, “Who will I be if I sell my business?”
It’s painful to think that your identity, your livelihood, your friends, and life style may end when you sell your company. But it doesn’t have to be that way. Selling your company doesn’t have to mean retirement or loss of purpose. You have other passions or interests you want to pursue after you exit your business. An exit plan helps prepare you for the eventual transition out of your company
Having a plan for your next adventure is the best way to get momentum. And momentum will give you courage to finish. After all, it’s your life and your business. Make it the best it can be. Do it now.
As a business intermediary and advisor with Murphy Business & Financial, Sheila Spangler successfully guides owners of privately held companies through the business sale, valuation and exit planning process. She can be reached at firstname.lastname@example.org.