Even though the majority of business owners recognize the benefits of planning for their eventual transfer of ownership, only a small fraction of them have actually put any sort of written plan in place – much less a comprehensive one.
While it may be hard to understand why this is so, one simple reason is the human tendency to view the world through a lense that is shaped by our own assumptions.
Let's face it, we all make decisions every day based on assumptions that we've developed over time. And some of those assumptions are simply wrong. For business owners, the list of potential assumptions is incredibly long. The chance for at least some of those to be faulty puts the future at risk for themselves, their families, and their employees.
Let's take a look at some common assumptions....
1. "I'll have plenty of time to figure this out later."
The reality is that Death is inevitable, and we seldom see it coming.
Disability, divorce, and other unexpected events can also force a quick sale. Liquidations at distressed prices occur every year due to such events. With Advanced Planning, these businesses could have instead been transfered in an orderly manner at fair value, in accordance with the owners' personal objectives.
2. "When the time comes, I or my family will simply sell the business. (Brokers call all the time to say they have ready buyers available.)"
Studies indicate that from 80 to 90% of the businesses put on the market fail to sell. While countless buyers are currently looking for desirable businesses, they are extremely selective and screen out over 90% of those they consider - even very profitable ones.
And for those businesses that DO sell, the process takes time...easily six months, a year, or even longer if the business isn't ready.
Is your business positioned to survive such a long process?
3. "Hey...Sandy down the street just got an unsolicited offer that will set her up for life. The same might happen to me."
Yes...and you might also win the lottery.
It is true that strategic buyers often pay premium prices for acquisitions that offer synergies to their businesses. Ideally, you may have a similar opportunity; but do you truly want to risk everything you have worked so hard to develop, hoping for a potential lottery win?
4. "I'll be fine. Joe at the club just got "xxx $'s" for his business. Mine is bound to be worth even more."
Each transaction is unique, and what one owner got paid has no bearing whatsoever on what your business may be worth. And keep in mind, the after-tax net to the seller is much more important than "the price". The need to make an assumption about what your business is worth can easily be eliminated by having a credible appraisal prepared by an independent professional.
5. "I'd love to do something else; but my business isn't worth enough to satisfy my financial needs."
This is the reverse assumption to #4. Why base your future on an assumed valuation when an objective one can be obtained from a qualified professional? You might be closer to your objective than you think.
6. "If I can sell my business for enough money, I will be happy forever."
Maybe, but we are all different.
For some people, the answer is certainly YES. With financial security, they will find something to do that makes them very happy.
But, others suffer with a lack of stimulation, fulfillment, and meaning after leaving a business that had become such a major part of their identity.
Effective planning prepares you for the emotional aspects of an ownership transfer as well as the financial ones.
7. "I LOVE my job, and can never envision life without it. My "plan" is to take my last breath while happily working in my business."
The desire to stay on the job is not that uncommon among business owners. For those who wish to do so, the advance planning provides them with peace of mind, knowing that the benefits of doing so will provide protection for their family and employees whenever that last breath is taken.
Without a clear plan, the abrupt loss of an owner often results in so much disruption that the only option is liquidation of the business, with loss of all employee jobs and minimal returns for the family.