Common questions I get these days from business owners are “should I sell my business now before things get worse or should I hang in there until things improve? Or is there a reasonable plan C or D involving succession or transfer of the business to my kids or key employees?” These questions usually have a timing (when?) and a structural or process (how?) aspect to them. The questions probably should be expected more often given today's current economic climate coupled with the growing bulge of baby boomer entrepreneurs. The answers to when and how are of course related. The alternatives and potential outcomes often appear obscured at first glance. The “best” answers most always hinge on what does the owner want.
In a beautiful magical Disney world of perfection, the answers to these questions are nicely laid out in a book sprinkled with pixie dust entitled “My Exit and Succession Plan” which sits neatly on the owner’s bedside table…providing for a wonderful peaceful sleep at night. In the real world, however, these answers are most often unknown, unexplored and filled with anxiety and stress for an owner who is consumed with keeping successful business operations on the rails. Research well documents that the majority of business owners that are reaching retirement age in the next 3 – 6 years do not have a plan for when and how they will “leave” their business, monetize or transfer their investment, or retire generally.
In my experience, the how question is less clear and more hair-pulling for an owner than the when question. A determination of how you wish to exit or transition your business usually precedes the timing question.
I believe there are often several fundamental and valid reasons for an owner not planning in advance for “leaving”:
Too busy right now…will deal with it later
Might stir up family or personal issues and requires emotional investment to decide
Don't want to admit they don't know and don’t know who to talk to about it with
Afraid the value of the business is not enough for their needs
Don't want to deal with retirement...or death…or the reality associated with either
I have sometimes asked friends and clients why they have no such plans or plans to develop a plan. What I’m often told is that it is all very complicated and whenever they start to think about it, all the see and hear is NOISE!
So what is the problem with not planning in advance for an exit or a succession? Well the simple answer is that unintended or unexpected bad things might happen due to personal circumstances outside your control, leaving you little or no time to react. Personal circumstances may cause a shortcut to forced retirement or exit (voluntary or involuntary) earlier than expected. These personal circumstances may be the result of sickness, marital issues, new-found preference for retirement, change of heart or any variety of other reasons…including death. “Bad things” might include obtaining a lower value for sale of the business, incurring significant taxes that may have been avoided, finding no successors when needed, or leaving festering family problems for the executor to handle.
I believe that owning a business while nearing the need for exit or retirement without a plan to do so is like being strapped to the railway tracks watching the oncoming train without the ability to get out of the way. The closer the train gets, the fewer alternatives available and the greater the stress. The decisions do not get any easier with pressure. The consequences of the train are unavoidable at some point.
Planning doesn’t stop bad things from happening. It may bring peace of mind, less taxes, higher valuation, reduced stress at time of exit and greater chance of smooth exit and future success. I encourage all business owners especially those nearing retirement to be clear and explicit about their eventual exit and succession plans. If they don't have an expert on the topic in their circle of friends, family or business associates, then I suggest finding an independent trusted advisor to help them. There is no shame in seeking an expert for something critical in your life that you are not familiar with. Even Phil Mickelson has a swing coach. You don't think Phil knows the game of golf better than his swing coach? The reason he has a coach is to be able to see and advise on the things that Phil can't see.
If you are a business owner nearing retirement or the desire to sell or transition your business and have not planned for that event, you may not feel the straps on your arms and legs holding you to the tracks but they are there nonetheless. I encourage you to develop an exit or succession plan that accommodates your objectives and begin working on what you need to do to so that you are not scrambling last minute. Those objectives may change and your plan may need tweaks or changes. Bad things may still happen but you will be more prepared and may avoid some bad consequences. Good things may happen too. But get off the track!
A feature article by Dwayne Coben of Coben Advisory Inc. (www.coben.ca). Coben Advisory is a specialized corporate & executive advisory firm that offers services to help our clients plan, improve, grow and succeed in or exit their businesses.