According to surveys, up to 79% of business owners plan to exit their businesses within the next 10 years, with more than half saying they want to exit within the next five years. However, many business owners fall into the trap of the “rolling five-year exit plan,” in which owners constantly reset their exit dates for five years later. This often prevents them from taking tangible steps to accomplish their exit goals.
If you ask owners when precisely they are planning on exiting their businesses, a common response is “I don’t have an exact date. Maybe within the next five years. Setting a date isn’t that important to me.”
This reluctance to face a transition leaves a lot to chance. Consider the swings the economy and financial markets have experienced in the past decade. Some parts of the country currently have the lowest unemployment rate in 40 years. Ten years ago the economy almost collapsed. Do you have confidence the next five will be smooth sailing or uneventful?
If you ask owners why they don’t think it’s important to set an exit date, they will say that they love their companies and that they worry about what will happen to them when they are gone. Many of them have no idea what the next step of their lives will look like on a personal level as well. Setting an exit date forces people to begin to do real planning and make significant changes in their lives and their businesses – something some owners do not want to face. Facing change is hard.
The good news is that once they stop procrastinating and get serious, the changes they make are often very positive for their companies and their lives. Eliminating owner dependence makes companies stronger and more profitable. It also enables owners to slowly transition to the next phase of their lives by eliminating responsibilities and freeing up more time.
Some owners worry that they will not be ready to leave by the time of the exit date they set. Exit planning is about implementing strategies to prepare a business for success during and after a transition with minimal disruption to cash flow or staff. It doesn’t mean that owners will be kicked out the door on a specific date. It means they will have more options because the company is stronger. They can leave or stay on in a leadership role depending on their preferences.
Set An Exit Date
Setting a departure date allows you and your advisors to undertake the planning and action items needed to prepare the business for your exit. Properly done, this gives you the owner the flexibility to leave when you want and on your own terms.
If you’re ready to discuss how setting an exit date might affect your exit-planning process, or you’d like to discuss how your exit goals align with when you want to exit, please contact Prometis Partners today.
The information contained in this article is general in nature and is not legal, tax or financial advice. For information regarding your particular situation, contact an attorney or a tax or financial advisor. The information in this newsletter is provided with the understanding that it does not render legal, accounting, tax or financial advice. In specific cases, clients should consult their legal, accounting, tax or financial advisor. This article is not intended to give advice or to represent our firm as being qualified to give advice in all areas of professional services. Exit Planning is a discipline that typically requires the collaboration of multiple professional advisors. To the extent that our firm does not have the expertise required on a particular matter, we will always work closely with you to help you gain access to the resources and professional advice that you need.
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Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity.