This year seems to be flying by – and all signs are pointing towards spring. Daylight Saving Time will have clocks springing ahead on Sunday, St. Patrick’s Day is a little more than a week away and the spring equinox will follow shortly thereafter. And for all you sports fanatics there is March Madness.
Spring is also a time for new beginnings. The earth seems to come to life again as buds appear, animals awaken from hibernation and the earth tilts back towards the sun – at least in the norther hemisphere. Farmers and gardeners plant seeds and temperatures warm. I have already dog-eared the pages in the Burpee catalogue marking the flowers and vegetables I want to plant this spring. We have a new home and so there is much planning to be done. If planned well and cared for in the coming months our gardens are sure to produce beautiful blooms and plenty of vegetables.
“What we can control is our readiness” -Dan Quinn
Getting ready for the spring planting ensures a successful harvest. This is includes evaluating the soil and determining what amendments are needed, picking the right seeds and plants for the geographic region, and then caring for the plants. Preparation is also important when planning for a transition/exit from a business. One must determine the current condition of the business, make amendments, and care and nurture the business if one expects to reap the rewards of its harvest.
So, if being ready is so important to a successful transition from one’s business,
why do so few business owners prepare for their exit?
Read on…
According to the Exit Planning Institute’s “The State of Owner Readiness” reports and other research performed over the past decade information has continued to show:
Most business owners have 80 to 90 percent of their financial wealth locked in their businesses
Most business owners agree that having a transition strategy for their business is important
Most of those business owners have no written plan and 54 percent had done NO planning at all
Nearly two-thirds of business owners are not familiar with what their transition options are
Based on these statistics, is it any wonder that
Only 20 to 30 percent of businesses transition successfully
This lack of owner and business readiness can have unintended consequences when exiting your business, including:
Selling your business for less and leaving money on the table
Loss of good potential buyers
Paying too much in taxes
No sale at all
Lack of satisfaction, wealth or health post sale
That is not all. Baby Boomers are reaching retirement (hint: you are the only one wanting to sell your business) and successful entrepreneurs will be ready to sell. This means there will be competition in the markets and your business must stand out. But will it?
So, what should you do?
Exit readiness requires you to look at both your business and personal goals. While your business may be attractive to a potential buyer, will your business and you be ready to sell? This is an important distinction, one that many business owners underestimate.
Readiness entails having a plan in place so that when you are ready to sell (or transition) your business everything is in place to ensure the transition/sale goes as smoothly as possible, the business sells/transfers for maximum value and your business, personal and financial goals are met. Examples of business readiness include, but are not limited to, being prepared for due diligence, knowing and understanding the value of your business, and taking steps to enhance value and reduce risk to potential buyers. Personal readiness includes, understanding the financial implications of the sale/transition of your business, understanding income and estate tax implications, and knowing what you will do post exit to maximize your enjoyment.
To ensure your exit readiness, consider the following steps:
Educate yourself about the exit planning process and why a good exit plan should be part of your overall business strategy.
Don’t wait to ready yourself or your business – you never know when an opportunity will present itself.
Determine your exit readiness by enlisting the help of a Certified Exit Planning Advisor (CEPA).
Address lack of readiness - by “amending” the business making it more attractive, lowering the risk to potential buyers, preparing the business (refer to my blog post on the Four Cs), and addressing personal readiness concerns.
Care for and nurture your business by improving growth and profit, knowing and understanding your exit options, preparing for unexpected events (see last month’s blog on the importance of a personal contingency plan).
Ensuring your exit readiness is like planting and nurturing a garden. You can’t wait until harvest time to reap the rewards. If you do you will be disappointed. Begin the process well before harvest time to ensure a successful transfer, maximize the value of your company and have no regrets. In the meantime, you will be improving your business overall which will likely result in a better business operation overall, generate more income for you as the owner and increase the chances that you will be not only attractive to a potential buyer but also READY.
Want to determine your exit readiness?
Check out the Are You Ready tool on my website or contact me today for a more in depth determination of your exit readiness.
Want to start working on your transition strategy? Ask me about my Transition RoadMap®. The Transition RoadMap® is specifically designed to help you begin thinking about your business as an outside investor would. Whether you are looking to sell your business or just want to enhance value, the Transition RoadMap® should be part of your overall business strategy.
Learn more about the Transition RoadMap® here.
Ready to get started? Email me or call me at 970-389-4802 for a FREE initial consultation.
Stay Tuned!
Next up, we identifying your dream team. Have a great month!
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ETS Compass is my personal newsletter that provides thought-provoking topics and helpful guidance to business owners looking to navigate change in their businesses. Whether it is value enhancement or transition planning, it is my goal to educate you.
My goal is to provide useful and purposeful information to you that may help you transition from your business.
Author: Sheryl Brake
Sheryl is the CEO and Founder of Encompass Transition Solutions, LLC and former partner of a top 25 national accounting firm. She has been working with business owners in a wide variety of capacities for more than 30 years. Sheryl lives in her home state of Colorado with her husband, Michael.