As the National Director of the Transaction Advisory Services (TAS) practice at one of the largest accounting firms in the U.S., I can’t stress enough how crucial exit planning is for business owners. Taking thoughtful steps to increase the chances of a smooth transition and getting the most value out of your years of hard work are the top-line goals of a smart exit plan. According to the 2023 National State of Owner Readiness Survey by the Exit Planning Institute, more business owners are awakening to the importance of exit planning as compared to ten years ago.
It was encouraging to see the increased awareness, as a well-informed business owner is a tremendous asset to a transition team. Owners who have taken the time to seek advice from experts are in a significantly better position to realize both the selling price and terms they seek. Business owners who are prepared for this event often have a dedicated exit team, a solid written plan, and ongoing projects to boost their business value.
Owner education is a critical component of a good exit strategy, making a complex process much more manageable. We worked with a business owner, Sarah, who initially was overwhelmed by the idea of exit planning but grew much more confident after attending a few workshops and consulting with advisors. She even started implementing value enhancement projects, which paid off significantly when she eventually sold her business.
Some insights from the Exit Planning Institute survey:
• Younger generations are ahead of the curve. The survey indicates that younger business owners, like Millennials and Gen Z, are more prepared for their eventual exit than baby boomers. They’re more likely to have formal, written plans, and to have educated themselves about the process. Millennials, in particular, are often looking to build and sell multiple businesses throughout their careers. This proactive stance sets them up to take advantage of opportunities and avoid potential pitfalls, and demonstrates that exit planning isn’t just for those nearing retirement.
Another young entrepreneur we worked with, Jake, has already built and sold two businesses. What does he attribute his success to? A well thought out exit plan each time. By understanding his business’s value and aligning his personal goals, he’s been able to make smooth transitions and reap significant rewards.
• Family business transitions are changing. The survey also reveals a shift in family business transitions. Most businesses in the survey are family-owned, and second-generation owners are proving more prepared than their predecessors. Younger owners prefer internal transitions, like passing the business to family members or employees, rather than selling to outsiders. The trend highlights the need for clear, strategic planning to ensure these transitions are smooth and the business legacy is preserved. Business owners and their management teams greatly benefit from leadership and culture training, which improves the chances of the business continuing its success into the next generation.
One of the survey’s most eye-opening findings is the magnitude of the wealth transfer opportunity on the horizon. As baby boomers retire, the value of privately held companies in the U.S. has grown to about $18.7 trillion, a $14 trillion opportunity for those planning to exit within the next decade.
If you’re thinking about selling your business within the next one to five years, now is the time to plan. Most business owners will only transition one business in their lifetime, meaning they have one chance to maximize returns and secure their financial future.
Consider Mark, a baby boomer who recently sold his company. With a well-crafted exit plan, he secured a deal that provided for his retirement and ensured the continuity of the business he spent decades building. He was also able to make sure his philanthropic goals were achieved in a tax-efficient manner. His experience is a testament to the importance of timely and thorough planning.
Recommendations
Exit planning shouldn’t be a last-minute thought. It needs to be part of your everyday business strategy. Knowing your business’s value, aligning your personal and financial goals, and putting together a transition team are steps all business owners should take. Experienced professional advisors are invaluable in this process, helping you navigate the complexities of a financial and emotional transaction of such magnitude.
The 2023 National State of Owner Readiness Survey underscores the importance of education, readiness, and comprehensive planning for business owners considering an exit. By taking proactive steps and seeking professional advice, you can unlock the wealth in your business and greatly improve your chances of a successful transition. When business owners were asked about their exit process years after the fact, a couple of the biggest regrets they shared were not being better prepared to capitalize on the financial opportunity and not having an adequate plan for their life after the sale. Proper planning well in advance of a transaction could have alleviated these regrets.
You can read the full Owner Readiness Survey report on the Exit Planning Institute’s website at https://exit-planning-institute.org.
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