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11 Reasons Owners Don't Commit to Exit Planning

Submitted by John Brown on Mon, 06/13/2016 - 5:00am
Reasons Owners Don't Exit Image

Advisors who work with business owners have heard the excuses owners use to put off doing the things that they know they should do but just don’t see as pressing. Whether the advisor is a CPA, attorney, financial advisor, valuation analyst, or any other type of professional, they’ve made important and timely recommendations only to have owners agree in theory but not in action.

Exit Planning Advisors commonly run into inert owners, but they understand the reasons owners fail to act and have tools to move owners to act in their best interests. In this article, we outline the three principle owner responses to Exit Planning, in no particular order.

Category I: They simply don’t want to create an Exit Plan.

Category II: They have no urgency to create an Exit Plan because of one or more false assumptions they’ve made.

Category III: They don’t know how Exit Planning works.

I. Thanks but No Thanks

Owners who simply don’t want to create Exit Plans generally have two reasons for not wanting to do so:

Reason 1: They fear the unknown.

Reason 2: They don't want to retire.

In the first category, we find owners who don’t know who they’d be if not the owner/manager/hub of their company. Others don’t know what they’d do with their time if they couldn’t fill their days as they do today.

In the second category are owners who truly love what they are doing and, no matter how much someone offered to pay for the company, they’d still come to work every day. We also find those who simply cannot imagine anyone else doing a better job managing their company. Most of the owners in this category, however, are those who are making more money from their company than they can from any other type of investment.

II. False Assumptions Suck the Urgency out of Owners      

Here again there are two categories not of owners, but of assumptions. The first set of poor assumptions relates to time, the second to dollars.

Time-Related False Assumptions

Reason 3: The most common mistake owners make in thinking about their future exits is that they assume that when they are ready to go, their business will be ready for them to go as well. We could write a book about the errors in that theory; in fact, we have—John Brown’s Exit Planning: The Definitive Guide.

Reason 4: Related to previous assumption is the optimistic view most owners have of the time it will take for their businesses to grow to the amount of cash flow and value that can support their post-exit lives.

Reason 5: Owners underestimate the number of years they (and their spouses) will live after the day they leave their companies. 

Dollar-Related False Assumptions

The natural optimism of owners is evident in the assumptions (all of them false) that they make about money. Here are some reasons owners fail to commit to Exit Planning.

  • Reason 6: They underestimate the amount of income they’ll need to sustain a comfortable retirement.
  • Reason 7: They overestimate the likely return on their invested assets.
  • Reason 8: They overestimate the value of their companies.
  • Reason 9: They overestimate the net proceeds from the sale/transfer of their companies.

III. What the Heck Is Exit Planning?

In this last group, we find owners who don't commit to Exit Planning for the following reasons:

Those are 11 reasons why an owner may not move forward with planning, even when they know they should. To encourage owners to overcome fears and false assumptions and act, we’ve found that the best, and usually the only, successful strategy is to consistently provide owners accurate, useful information on Exit Planning. The information that advisors provide over time—this is not a one-time conversation—must convey that planning with them improves the odds of owners reaching their goals, decreases the time they will spend spinning their wheels, and will give them more time to do the things they enjoy.

Advisors interested in helping owners achieve their goals and aspirations can either wait for owners to pick up the phone and call them for assistance, and experience shows that that will not happen. Alternatively, they can launch and maintain an information campaign—some would call this a marketing campaign—to foster awareness of owner-centric Exit Planning. Without effective, content-based marketing and engagement tools, getting owners to move off the dime is challenging at best.



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