Business Owners Beware

If you are a business owner thinking about an exit from your business, you face a unique set of challenges. According to a January 2013 article on WealthManagement.com, “there are some 12 million baby boomers who own a business, and 70 percent of them will be retiring over the next couple decades.”

Statistically, only a small percentage of business owners make a successful transition from their privately-held business into retirement.  One of the primary reasons for this high failure rate is the extremely personal nature of a business exit.  And, unlike a retirement from a standard position within a traditional company, the exit from your businesses often feels far more significant.  How do you know if you are emotionally ready to exit your business?

Your Business and Your Identity

Creating and growing a privately-held business is far more than a job; in reality, the business is often a large part of an owner’s identity.  There are both personal and practical factors driving this strong tie to the business, including:

  • Being the ‘boss’
  • Having control over one’s destiny
  • Achieving personal goals through the business creation process
  • Enjoyment of influencing and empowering others
  • Personal wealth creation (the business pays a lot of personal expenses)
  • Personal guarantees tied to business loans
  • Personal promises and contracts made with co-owners and partners
  • Recognition as a successful owner in one’s community

Many owners will start the exit planning process only to discover they do not have the proper structure in place to create or implement a plan that meets their financial goals.  Still others have, to date, only contemplated exiting their business and moving on to retirement, but have not started the process because of their lack of mental readiness.

Characteristics of Mental Readiness

Owners with a high mental readiness to exit their businesses are not intimately involved in the day-to-day running of the business. They have a plan to spend their time away from the business and view their businesses as an investment and can measure the return on that investment.

Owners who have a low mental readiness are very involved in the day-to-day running of the business and the business cannot run without them; they have not given much thought as to how they will spend their time when they no longer own their businesses; and they view their businesses as a job that supports their lifestyle.

For many owners, taking the time to plan your exit can be challenging because you are extremely busy taking care of everyone else: your customers, your employees and, of course, your family. Sometimes, you may even be a little uncomfortable thinking about or discussing these softer, more personal issues, but a focus now on these issues will pay dividends down the road. No matter your business or your timetable, having a solid understanding of your mental readiness toward an exit is a great first step in the overall exit planning process.

In fact, some would argue that assessing mental readiness is the most important step in the process of retirement or exit planning and that, unless special care is taken, it will be difficult to move forward with a successful exit.  This is where owners tend to get stuck!

Stages in the Exit Scenario

Within this complex fabric of baby boomer-aged business owners heading into retirement, where do you see yourself in the big picture?

  • Stage ONE owners have contemplated exiting their businesses, but have not started the process. They have taken no action; they have not discussed their hopes and dreams with friends, business colleagues or family.
  • Stage TWO owners have implemented action steps to start the process of exiting their businesses but, due to a variety of factors, are stalled in midstream.
  • Stage THREE owners have successfully exited their businesses and are now living a fulfilling and satisfying life.

If you are a stage-three, former-owner and have completed a successful exit, you represent a tiny percent of the population of business owners. Congratulations! If you fall into one of the first two categories, know that you are not alone. The key is to start the process now, as it usually takes several years to plan for a successful exit.

Successful Exits Do Not Just Happen

Successful business exits do not just happen.  In fact, an owner needs to be an active participant in the exit planning process to help assure success.  And, by knowing your emotional or “mental” readiness for your exit, and developing a plan to advance to the next steps, you are being proactive in addressing your situation and increasing your likelihood of success.

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