Many business owners love the companies they’ve founded, whether it’s because of the work they do, the changes they effect, the money their companies provide, or something else. When owners carve out a comfort zone within their businesses, it can cause them to question why they would want to plan for their business exits. “I’ve got 5 or 10 years,” they might say. Some might even go farther, saying, “I don’t ever plan to leave my business!” Today, we’ll look at a few reasons why owners who love their companies should still make plans to leave and how advisors can help them.
Post-business life usually doesn’t get cheaper
For the 90% of business owners who intend to leave their businesses before they die, financial security is an absolute must. While they run the business, they likely pull a salary; use perks like company transport, insurance, and networks; and perhaps take advantage of their personal clout as a successful business owner. Once they exit the business, those things tend to go away.
A strange but more-common-than-you’d-think mind-set for business owners is the idea that they can cut back on their spending once they’ve exited. This is almost never the case. When owners exit by choice, they usually spend at least 75–90% of what they spent when they owned the business. They often want to travel, or lavish their families with gifts, or set their grandchildren up for college: all without the safety net of a steady income provided by the business.
In short, post-business life is usually as costly as life before the exit. Even if owners don’t intend to exit for 5–10 years (which is what many owners say they intend to do), they’ll still need to know whether they can maintain their current lifestyle once they do leave.
Advisors can help owners determine their financial situation in a few ways. They can establish an owner’s goals and estimate what it will cost to achieve those goals. Relatedly, they can help owners determine the gap between the money they have and the money they need to achieve those goals. They can also compare that gap to the company’s current value, then begin installing Value Drivers that allow owners to sell or transfer the business for the amount they want and need.
All of this requires time. So, even if owners love their companies and don’t see themselves leaving them for several years, it’s in their interest to start planning for that eventuality. Because post-business life usually doesn’t get cheaper.
Planning lets owners focus primarily on what they love
Many business owners often find themselves doing things they never imagined doing within their businesses. Some of those unexpected things are things they’d rather not be doing. For example, an introverted owner might find that she needs to be the face of the company. A key focus of Exit Planning is finding the best people for the right job so that the owner doesn’t have to be everything to everyone.
Exit Planning Advisors and their Advisor Teams often address this by helping owners find or train next-level managers. Next-level managers take on many of the responsibilities owners find themselves stuck with. Oftentimes, those next-level managers can handle those responsibilities better than the owners themselves, if for no other reason than the owner simply isn’t too passionate about those responsibilities.
The flip side of this coin is that with proper planning, business owners can do only the things they truly want to do: the things they likely started the business to do in the first place. This can make ownership even more fulfilling and allows owners to focus on the things they enjoy as they begin to wind down their ownership.
Life goes on without the owner
About 10% of owners say that they want to die at their desks. Surely, Exit Planning is unnecessary for them, right?
That’s usually not true. Even owners who plan to die at their desks often have people or causes they care about that the business directly affects. These owners may have family members who rely on the business to maintain their lifestyles. Without proper planning, what happens to them? These owners may want to assure that after they die, their employees still have jobs (or a safety net that gives them time to find new ones). What happens to them without proper planning?
Even if owners plan to die at their desks, Exit Planning is still valuable to them. Their advisors can help them install business continuity plans that can give people they care about direction regarding what happens to the business once they die. They can install next-level managers whose goals and managing styles line up with the owner’s values-based goals. They can even help owners’ families continue to maintain their lifestyles without the business.
- Owners who love their companies should still make plans for what happens after they exit them, especially if people or causes they care about also depend on the business.
- Owners who exit by choice during their lifetimes must assure their financial security before they exit. If they don’t, they may be forced into working for someone else after they exit.
- Advisors can help owners create actionable plans that let owners exit when they want or provide for the people they care about after they die.