All small business owners in one way or another dream of owning a business that can support their current lifestyle and provide freedom to manage their own life, income that will provide a comfortable retirement and a solid foundation for their family. Healthy strategies for sale or intergenerational transfer of a business are vital to protect your dreams.
One client asked me when she should start planning her exit from her business and was a bit shocked when I said from the day she started up. I am a firm believer in always having an exit strategy, as you never know what life will throw at you. I have seen illness, premature deaths, divorce and changes to the economy or specific industries force people’s hands earlier than expected.
A tsunami of retirement
We are just about to see a veritable “tsunami” of business owners seeking a way out of their businesses as baby boomers hit 65 over the next 15 years. So if you’re not one of those without a plan in place, then you may be one of the sad majorities that fails to sell off the business and sees retirement dreams fade quickly. Many Aussie small to medium business owners see their business as their superannuation. Well then, like any other investment, you have to know how to liquidate your investment when needed.
While a business owner may look forward with pride to the possibility of unlocking the value in their business as they sell or transfer it to family, all too often we see them stuck in a rut until events force them to sell or poor performance shuts them down. Whether it is transition planning or selling the business, not knowing where to start is common. It is sometimes easier not to do anything. Here are a few common excuses people have given me over the years for not planning their exit strategy:
- I’m too busy, love my work and don’t really plan to retire.
- No one else has the ability to keep this business going like we can.
- We can’t afford to retire because we don’t have enough money saved.
- I don’t know what I’d do with myself, so I’ll only sell if I get sick.
- I’m waiting to be sure my children are ready to manage the business.
- I’ve looked at the market, and my type of business isn’t attracting the price I feel it’s worth.
- We run a lot of our personal expenses through the business.
- My family can sell the business after I die. (Fire sales rarely engender fond memories.)
However, the most common reason for failing to design an exit strategy is fear of addressing the succession planning because it is like opening a Pandora’s box, with unknown personal and family demons ready to jump out. The unspoken feelings and expectations of all involved can destroy a profitable business.
What I have seen within those businesses that do well is that there is a good leader, often with the help of their accountant or a specialist, who openly communicates a shared vision for the future with the staff and family members with a view to instil trust, common purpose and shared values. They make it clear that the shared vision will include their exit at some stage, and they put in place solid business succession planning for the new owners, staff and family members so that all know clearly where they stand.
The one key to success above all is that they are proactive, rather than reactive, and they begin the succession process many years before there is an actual event to trigger the exit. They look not only at their exit but how the buyer or family will fund the takeover. It is important to encourage open, honest communication and participation in the process, as it’s vital to the success of both the family and the business.
There is strong relationship between communication and trust. They are intertwined, and a lack of trust causing ineffective communication (or vice versa) will make a successful transition impossible. Defensive barriers are raised as people look to protect their position. However, a focus on creating effective two-way communication will help build trust. Both are essential, and the absence of both causes most harm.
So if you don’t have an exit strategy, you need to start the process now. Look around at internal sources and external advisers who can help you design your plan. A decent “what-if” analysis is often a great way to identify the foundations of your plan.
Imagine, what if you had an illness and could not work in the business any longer? Start planning today.