Business owners know that planning is a crucial aspect of their success. It’s evident in their initial business plans, their yearly budgets, and their long-term business planning. With all the plans owners have, it’s a bit shocking to note that only 17% of surveyed business owners have a written plan that describes how, when, and to whom they will leave their businesses. Why is this number so low, and what are advisors doing about it? In this article, we’ll look at what business owners are thinking and doing about their exits—based on The BEI 2016 Business Owner Survey Report—in anticipation of BEI’s 2018 Business Owner Survey.
Most Business Owners Aren’t Prepared to Exit
Let’s first look at three different statistics from The BEI 2016 Business Owner Survey Report.
- 80% of business owners believe that a successful business exit will result from planning and action items they implement.
- 75% of business owners would exit their businesses today if they had financial security.
- 17% of business owners have a written Exit Plan.
Most business owners know that they must do something to position themselves for a successful exit. Most owners also have a want to exit their businesses just as soon as they fiscally can. Yet, only a small handful of those same owners have adequately prepared themselves for that exit. While these stats help us establish the fact that most business owners aren’t truly prepared for their business exits, they don’t tell us why. Fortunately, we have stats that can help us answer that question.
Why Business Owners Aren’t Prepared, Despite Their Knowledge
We asked the 83% of business owners who did not have written Exit Plans why they didn’t have them. The top three reasons were related:
- 40% said they were either “too busy” or “didn’t feel a sense of urgency.”
- 37% said they would “act when ready.”
- 31% said they had “more pressing issues.”
Among the top three answers is a common theme: the matter of time. Business owners are busy people, and when they think about their business exits on their own, they tend to view them as an issue so far into the future that it’s not worth thinking about right now. This means that the onus is on advisors to put the urgency of Exit Planning into terms owners can relate to.
Explaining the Urgency
Experience shows that business owners who object to Exit Planning based on time are typically masking another fear. When owners realize that their business exits will affect how they, their families, and their businesses thrive after the exit, the time issue often quickly fades. Skilled advisors must pinpoint what what’s most likely to make business owners act, and they do so by asking the right questions of their business-owning clients.
There are three pain points that business owners commonly have that motivate them to make time for Exit Planning:
- Building business value: “Do you have time to build your business’ value?” There are precious few business owners who don’t have enough time to build business value. A defining element of Exit Planning is building business value. When business owners realize that a pillar of Exit Planning is building the value of their businesses, it becomes more enticing to them.
- Protecting the business: Most business owners who say they don’t have time for Exit Planning are the focal point of the business. That is, the business wouldn’t exist without them. Being the focal point of the business is a high-risk strategy. If anything were to happen to the owner—such as death, incapacitation, or any event that affects the owner’s ability to run the business—the business, its employees, and even the community might face insurmountable but ultimately avoidable challenges. Exit Planning addresses unexpected issues such as these, and owners are more likely to act on Exit Planning with this knowledge.
- Saving time: When business owners say they don’t have time for Exit Planning, they’re usually thinking about the initial meetings, which can span several hours as advisors gather info. But once owners get past those first few meetings, they find that Exit Planning makes time for them, rather than taking time. That’s because Exit Planning’s goal is to make the owner less critical to the business’ functions, which allows owners to only do the things they want over the things they must.
Given all this information, advisors should be champing at the bit over the vast opportunities to help business owners exit. After all, every single business owner exits the business someday: The only question is, “Can they do it on their terms?”
But a lot can change over two years, as any seasoned advisor knows. That’s why BEI is spearheading the effort to determine what business owners are thinking and doing about their exits now. We invite all advisors to share the link to BEI’s 2018 Business Owner Survey with business owners:
Knowing what business owners are thinking and doing about their exits is the first step in assuring as many owners as possible can leave their businesses when they want, for the money they need, and to whomever they choose.