Five (5) Key Planning Areas for Your Business Future

Your business success has been the product of years of hard work, dedication and focused results (and likely a little bit of luck).  As you think about a future transition of the company there are a number of factors that need to be considered because your future exit will impact a number of people who rely upon you and your company. A comprehensive plan for an exit includes a combination of personal planning and business planning to assist you in reaching your goals.  This newsletter highlights five (5) key planning areas that we hope helps you organize your total planning for a future exit.  planning

The key areas of planning are:

  1. Business planning
  2. Exit planning
  3. Financial planning
  4. Estate planning
  5. Advisory Team planning

1.  Business Planning

Privately-held businesses are constantly evolving to changes in the marketplace.  As such, your business has likely undergone some significant changes in the past few years.  It is important to focus on the future, looking ahead to what an exit can mean for you and a future owner.  Specifically, this means making plans for your business to run without you, including reducing risks that could jeopardize a transition.  A business plan for a future transition includes consideration to how the business will run without you and over what period of time these changes will be implemented.  Most importantly give thought to each business decision and ask whether or not it supports your future exit / transition.  By thinking about your exit as you make business decisions, you will build your business to better suit the exit that you have in mind.

2.  Exit Planning

As a part of your business planning, you should consider the options available to you for your future exit.  As an ancient proverb states, the best time to plant a tree was 20 years ago – the second best time is now.  Now is the time to begin or advance your exit planning.  Without a written [or substantially well-informed opinion] of how and when you are going to exit your business, it is likely that you will continue on the same path that you have been on for years and you and your company will not be prepared for a future transition.  Your future exit has a chance to produce a lasting legacy for you and your business as well as protect your overall wealth, perhaps for generations.  A solid exit plan can also be the gateway to you enjoying a newly defined life that is the reward for your business success.

3.  Financial Planning

Most owners have a high financial dependency on their companies.  Between their income, distributions and perks, they ‘live out of their businesses’.  Figuring out how much money you need to extract from the business in order to live without the business is a key element to your business and exit planning.  If you can measure your ‘Value Gap’, i.e. the difference between what you have saved today and what you need to meet your post-exit lifestyle, then you can begin to analyze the viability of your exit.  This Value Gap will also be a strong indicator of the exit options that you have available to you and how and when you will need to get paid for your illiquid business.
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The Supply & Demand of Business Transition Advice and Planning

This newsletters is written to make business owners aware of the needs for advice for the future transition of a business.  According to the U.S. Census Bureau statistics, there are nearly 30 million businesses in the United States today, meaning that a majority of these businesses will require a process other than an Initial Public Offering (IPO) of stock in order to achieve liquidity or turn the company stock (or assets) into cash.  Our objective in this newsletter is to bring a few of these facts to light and provide some guidance as to who may be a buyer of your business in the future.

A Wide Base of the TriangleUS Businesses

The majority of businesses in the United States today are ‘small’ businesses – enterprise values of less than a few million dollars.  The following chart illustrates the wide base of small businesses relative to the very small number of large, publicly traded businesses (organized by the number of employees within each organization) that sit at the top of the pyramid.

 

Implications for the Exiting Business Owner

Since a large number of business owners are Baby Boomers, this means that as the Baby Boomers begin to exit these businesses through retirement, the supply will likely outweigh the demand for business ownership.

Size Matters

To put this challenge into even greater perspective, it needs to be stated that smaller business owners are generally going to have a harder time with their exit than larger businesses.  Small businesses are often times more dependent upon the individual efforts of the owners of the business.  As a result, many owners of smaller businesses are actually not selling an enterprise, rather they are selling a job.  It is helpful for owners to understand the difference and to be aware of what, if anything they are able to sell to someone else.
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