All privately held business owners will one day exit their business. The exit will be voluntary (at a time of the business owner’s choosing) or it will be involuntary (due to burnout, illness, disability, marital problems or death). An exit strategy is needed to ensure a voluntary exit. A contingency plan is needed to be prepared for an involuntary exit. Either way - a plan is needed!
The largest transfer of private wealth in history will occur over the coming decade. Some estimates have this transfer at $10 trillion in the U.S. and $1.3 trillion in Canada. The increasing supply of businesses for sale will create a buyer’s market, in which buyers will only pay top dollar for the most attractive businesses.
In a Newport Partners survey of more than 100 Canadian business sellers, 62% recommended methodically pre-planning the sale of a business two to three years in advance. Business owners that come to market unprepared will likely sell for a discount, potentially significant, to those that have invested the time and effort to prepare for sale.
Developing an exit plan provides a tremendous return on investment. Some of the major benefits of having an exit strategy include:
- Maximize business value, saleability and price;
- Minimize taxes paid on sale of business;
- Regain control over how and when the exit occurs;
- Ensure business and personal goals are achieved;
- Minimize stress and conflict among the business owner, employees and family; and
- Ensure continuity of the business.
Despite these benefits, many business owners avoid the topic of retirement, succession or exit planning. Recent studies have indicated that less than 25% of Canadian business sellers actually took the time to pre-plan the sale of their business. Why is this the case? According to the CIBC/RBC Business Monitor (Q1 2010), the biggest succession planning challenges for business owners included:
- Getting the appropriate value for the business;
- Not ready to give up control or management;
- Finding the right successor and successor financing;
- Too complex and too many issues to deal with;
- Not enough time; and
- The family’s role in the succession;
It’s no surprise that there are many challenges and obstacles to developing and implementing an effective exit plan. However, the benefits far outweigh the costs and there are resources for business owners to turn to for assistance.
In the coming weeks I will continue to share valuable information on the topic of exit planning, including the 6 steps to an effective exit plan and the professional resources that are available to assist business owners in this process.