Business Owners: Why It's Time to Think About Exit Planning, Even If You Aren't Exiting Anytime Soon
The Overlooked Importance of Long-Term Thinking in Business
You're working hard every day to keep your business growing and profitable. The long hours and commitment are a testament to your vision and dedication. But have you ever stopped to think about what will happen to your business when you're ready to step away?
A surprising number of business owners don't think about exit planning until they're almost ready to retire. By then, many opportunities to maximize the value of their business—arguably their most significant financial asset—have already slipped away. That's why your best short-term strategy is actually long-term thinking.
The Inevitable Exit: It’s a Matter of ‘When,’ not ‘If’
Like it or not, exit planning isn't a matter of if; it's a matter of when. Whether you exit your business by choice (through selling or retiring) or by force (due to an unexpected life event), the point is that one day you will exit your business. The question then becomes, whose plan is it? Your well-crafted strategy or a forced hand by circumstances?
Are You Running a Lifestyle Business or a Value Business?
All businesses can be classified into one of two categories: Lifestyle or Value. A Lifestyle Business is built around the owner, and it ceases operations once the owner retires. A Value Business, on the other hand, has intrinsic value that extends beyond the owner's involvement.
Why does this matter? Because it significantly impacts the amount of money you can expect to get from your business when you exit. Value Businesses often attract higher bids from prospective buyers, whereas Lifestyle Businesses may not even be sellable in a meaningful way.
Don’t Fall into the Wealth Gap!
We often see two common mistakes with business owners who delay exit planning:
1. Overestimating Business Value: They assume their business is worth a fortune, but when it comes time to sell, they realize it's not as valuable as they thought.
2. Underestimating Retirement Needs: They don't consider the lifestyle they want to maintain post-retirement, which can be quite costly.
The difference between what you need to sustain your lifestyle and what you actually have is what we call the "Wealth Gap." This gap becomes the minimum amount at which you aim to sell your business. Thinking through and assessing your “Wealth Gap” in the short-term, will help avoid surprises that could force you to adjust your long-term retirement lifestyle.
You Have Options, Use Them Wisely
When exiting, you generally have three options:
1. Sell the Company: Convert your years of hard work into a lump sum or installment payments.
2. Retain Ownership but Appoint New Leadership: You still own the business but are not involved in the day-to-day operations.
3. Wind Down the Business: You step away, and the business ceases operations, along with your income.
Why Now is the Time to Act
Even if you're not thinking about retiring for many years, now is the time to start formulating a plan. The decisions you make today, including how you manage your assets, will impact your future.
We specialize in helping business owners maximize the value of their business through the Value Acceleration Process. Even if you're working with a CPA or money manager, we can add unique value in helping you plan for your eventual exit.
Visit https://calendly.com/staltfinancial/15-minute-call-business-owners to set a 15 minute phone call to learn more about what we do and how we can help you.
Until then, remember: Your best short-term strategy is long-term thinking!