Exit Planning Realities

Alistair Stewart, MMEC Senior Business Advisor

The very first baby boomers turned 65 in 2011; 10,000 turn 65 every day. Baby boomers own 63% of the private businesses in U.S., and 80-90% of their wealth is tied up in their businesses, where it is highly illiquid. Here in Montana, many of those businesses have been managed as a source of cashflow to support lifestyle; rather fewer owners have viewed their businesses as a source of wealth beyond income.

A recent Exit Planning Institute recent survey confirms that 76% of baby boomers who own businesses plan to transition over the next 10 years, and 48% plan to do so in the next 5 years. Alarmingly, the survey found that 12 months after selling, 3 out of 4 business owners surveyed “profoundly regretted” the decision, and 75% of private businesses put on the market don’t sell. A very common reason for ‘no sale’ is the gap between value expectations of the seller, and the price that potential buyers are willing to pay. Fully half of all business exits were not voluntary, but resulted from death, disability, divorce, disagreement, or distress.

Owners wishing to leave on terms and at a time of their choosing should focus on exit planning well in advance; I’ve heard it said many times that owners who don’t sufficiently plan for a successful exit are busy preparing for an unsuccessful one. So what’s an owner to do? In my experience, owners ‘lean in’ when asked a fundamental question “Do you know what your business is worth?” That difficult, triggering question gets to the heart of an essential, early step in exit planning; correlating owners’ “life-after-business” plans with their personal financial plans and the value of their biggest and most illiquid asset, their business. That eye-opening data frequently jumpstarts serious exit planning endeavors, about which, more next time....