by Joseph Tesoriere
During normal years, approximately 250,000 private businesses in the United States change hands each year.
As the Baby Boomer generation approaches retirement age, this number will more than double to more than 500,000 businesses per year. In total, more than 7.7 million business owners will be looking to exit their businesses over the next 10-15 years. Some estimate that these businesses represent over $10 trillion in wealth.
However, studies by Mass Mutual, Price Waterhouse Coopers, Marquette University and others show that over 75% of these business owners have no idea how to handle what will perhaps be the single biggest financial decision of their lifetimes.
Perhaps even more importantly, over three quarters of former business owners report that they regretted the decision to sell their business because the sale did not accomplish their personal or business objectives. Why? Because they did not understand all of their options and were not able to make informed decisions. This demonstrates a tremendous need for Exit Planning.
The effect that the aging of these key demographic segments of our population will have on our economy will be tremendous. This phenomenon has been called the “Age Wave” by Ken Dychtwald, Ph.D. an internationally recognized demographic expert.
Business owners who want to exit their businesses during the next 15 years will face increasing competition for quality buyers. The increase of the supply of available businesses and the relatively fixed number of qualified buyers will limit an owner’s options and cause downward pressure on business values. The only way to effectively deal with these facts is to develop a strategic Exit Plan that ensures that the business and its owners are building value and are able to seize opportunities that present themselves.
You receive a call one day offering you $10 Million, cash, for your business. Do you take it?
An Exit Plan is a comprehensive road map that helps business owners successfully exit a privately held business. An Exit Plan asks and answers all of the critical questions that a business owner and his or her advisors must consider when exiting a privately owned company.
An Exit Plan includes contingencies for illness, burnout, divorce, and even the owner’s death.
A good Exit Plan shows business owners how to maximize the value of the business at the time of exit and minimize the taxes that are paid. It ensures that the business owner is able to accomplish all of his or her personal and financial goals.
The unfortunate reality is that fewer than 25% of business owners have any formal Exit Plan. As a result, they are reactive rather than proactive, miss strategic opportunities, undervalue their companies, leave hard-earned wealth on the table, and pay too much in taxes when they sell their companies.
A comprehensive and integrated Exit Plan empowers business owners with the information they need to make informed decisions that maximize the after-tax proceeds they receive at closing, and which ensure that they accomplish their personal and business goals in the process.
Developing a successful Exit Plan is like assembling a complicated puzzle. The parts must fit with all of the others for the final image to take shape.
To increase the likelihood of success, a responsible Exit Planning program requires enlisting the assistance of many different individuals with different areas of expertise such as income tax, attorneys, management consultants, appraisers, insurance professionals, employee benefit specialists, estate planners and financial planners. Although well intentioned, these advisors may offer conflicting advice that will confuse and frustrate owners.
Because Exit Planning is typically a “once-in-a-lifetime” event, the process is not something in which most business owners have experience. As a result, the use of an Exit Planning advisor is recommended.
The use of an impartial advisor also adds an important degree of professionalism. In many cases, this can provide critical leverage because Exit Planning is often fraught with emotional issues.
Just as building a successful business takes planning, hard work and a little luck, so does leaving it.
