According to a study by the Centre for Small Enterprises at Massey University, during the next 10 years 64% of business owners intend to exit their businesses. For the North Shore, where I live, that means about 16,000 businesses may come up for sale (or other exit option) during the next 10 years. That’s 130 a month, every month, summer, winter, good times and bad, for a decade!
If you are thinking about selling your business during that time, do you think you will achieve the sale price you need to fund your ideal future in such a potentially crowded marketplace? Of those business owners who intend to exit their business in the next 10 years, 70% intend the sale to fund their retirement, but 87% have no formal plan on how they will do this. Many trades businesses rely almost solely on the owner doing most of the work to create the revenue and drive sales. Selling this type of business is probably not going to earn much beyond asset value, so the best option is to increase profitability and use the extra profits to buy passive income assets for retirement. So what are you doing to increase the profitability in your business? I mean REALLY doing, on a planned and consistent basis.
The message of planning a successful exit from business has not yet been taken to heart by the majority of business owners and this may result in a lot of unfulfilled dreams of a long and happy retirement. The general attitude of: “I’ll get round to it when I have to,” is all too prevalent and the point of early planning to maximise value at exit is lost on many.
To a lot of people, exit planning is viewed in a similar way as painting a house before it is put on the market i.e. something done close to the point of sale. Yet good exit planning should start much earlier. The benefits will be a wider range of exit options and a bigger pay cheque for the owner when they finally exit.
So what are the recommended steps?
- Decide to put a formal exit plan in place and include it in the general, long term planning of the business.
- Determine the strategic and tactical decisions that are required to progress the plan.
- Look at risk factors that could knock an exit plan off its course, such as: shareholders’ agreements, share types, wills and shareholders’ insurance.
- Look at all the exit options available and draw up a short list of the most preferred.
- Establish a personal plan for the owner(s) to make sure as much of this value ends up with the owner(s), with the least tax paid and a long term retirement plan in place.
- Identify and deal with possible impediments to a profitable exit.
If nothing else, following this process will result in a business that is running better, with higher profits and less reliance on the owner. At best it will result in the type of comfortable retirement that the owner wants and enable him or her to really enjoy the fruits of their labour. Not following it could result in the owner standing in line with lots of other business owners with similar offerings, hoping for a quick trade sale while facing retirement not as well off as hoped. The choice is yours.
To learn more about this process, email me at andy@tradescoach.co.nz for a no obligation review of where you are at and the possible ways forward.
A final word:
“The best time to start planning your exit is from start-up. The next best time is NOW!”