If you knew for sure that the number of homes in your neighborhood coming on the market was going to increase by 600% in the next three to five years, and you were counting on your home equity to fund a big part of your retirement, would you say it’s too early to plan a sales strategy? Or would you start now to get the house in shape to ensure the highest sales price, and de-clutter your life to prepare to downsize well before there was a glut of homes on the market?
Everyone eventually leaves their business. Some would say “toes forward or toes up.” But of the millions of small business owners in the US today, only 13% have a transition or exit plan to leave with maximum value.
What reasons do owners give for this dismal state of planning? And does any of these match your thinking?
#1 I don’t need to do this yet.
#2 I don’t have the time; I’m too busy running my business.
#3 I don’t want to think about it.
If you answered No. 1, you’re in the majority! The most frequent response of business owners for not doing exit planning is : “It’s too early.”
The evidence, however, screams “NOT TRUE.” US Census data tell us that the group of business owners 70 years old or older is growing at a staggering rate.
Up until 2005, the cohort turning 70 was about 20,000 per year. By 2015, that number grew to over 120,000 per year, a 600% increase! And over the next 10 years that number will further increase to over 180,000 per year, an increase of more than 900% over the historical rate — and it will continue to grow until 2030.
Historically, approximately 27,500 businesses successfully transfer ownership a year (about 25% to 30%, in the 2010 market.) But in 5-10 years, the number of businesses for sale will be counted in the millions. Isn’t it likely, if not inevitable, that the prices of businesses sold in the coming years will drop, perhaps by half or possibly even more?
Ask yourself, given the rapidly increasing business inventory projected: How long can I put off planning and still achieve my financial goals?
Your Basic Three Race Positions
In auto and other types of racing, your position in the pack can be a strategic advantage to winning. Here are three important positions in your race to sell your company.
Pole Position In auto racing, the pole position often means you’ve the fastest times in preliminary laps. In business, this means you have done some important preliminary planning 2-3 years or more before your exit. You have started to shape a plan to build a competitive advantage (i.e., be in the top 10% of companies on the market in your industry sector). You have some sense of your personal goals for post-departure, but they are evolving. You’re ready to pull your pit crew of advisors together to start the race.
Mid Pack You want to sell your business within a year or two and have just started to wonder if you’ll get the price you want, if it’s realistic, and what it will take to get it. You’ve talked to your CPA, perhaps, but haven’t got a real plan for how to run the race and finish in the money. You know you’re a bit behind, but the engine is running. Can you still win? Absolutely. In the Kentucky Derby, for example, 29% of winners were in position two when they started! Their team of specialists, the jockey, trainer, owner, and vet all worked together to make the win possible. Who will be your team?
Stuck at the Starting Gate You’re waiting for someone to fire the starting gun, but you have on earplugs, or your radio volume is blaring — anything to distract you from having to start the race. If you’re honest, you know you have a gnawing anxiety that you should start planning. You may have even talked about it with an advisor or friend. It just seems too complex, too overwhelming, or frankly, scary. Who wants to talk about “the end?”
Those with a desire to win the race big have three goals
- A profitable return on their years of investment in growing and running their business.
- A sustainable business that endures after they transfer ownership, whether to a third party, to internal management, or to family members.
- A sense of a legacy — that they made a difference to people, a field, or their families’ futures.
Those goals aren’t met without desire, a plan, and the discipline to execute on that plan. The task of exit planning is doable when you enlist the right help, and great business owners know how to execute a good plan once they have one. Exit Signs, my forthcoming book, outlines how to build your race strategy and execute the course to the finish line.
Ask yourself, is it really “too early?” And are you honestly too busy to risk your retirement with the biggest asset you have by delaying exit planning? Prepare yourself and your business to be on the inside track. The time is NOW.
Please share what worked for you in starting your race to the finish line.
Cover image First Place Race Car Driver — Image by © Royalty-Free/Corbis is licensed under CC BY 2.0 / Color altered from original