The way we conduct business after COVID has changed forever. Business owners continue to struggle to find good employees and customers in this new “flex” work world. One of the biggest challenges continues to be consolidation and business closures. However, few are prepared for these changes.
Maybe you were a fan of Banana Republic downtown, or Echo Lake Gift Shop and Lodge Restaurant. Perhaps you purchased a car from Rocky’s Autos or furniture from Larrabee’s over the last 40 years. There are hundreds of well-known, longstanding businesses shuttering. It could be a COVID hangover, or higher rents and a labor shortage. Or you could be part of the mass of baby boomers wanting to retire and transition their business.
This is why the State of Colorado Office of Economic Development and International Trade, and the Exit Planning Institute launched a Business Owner Readiness Survey to help business owners determine how to exit from their business. This survey indicated that 70% of respondents would like to sell in 10 years, referred to as the “Silver Tsunami.”
It is always better to plan and be prepared then find out in a lurch that your lease is not being renewed or your talent pool has gone off to find themselves. Entrepreneurs are a different breed. They eat, sleep, and breathe their business 24/7. It is a life choice but also a life cycle that eventually comes to an end.
“Having a plan to transition prior to an exit enables the owner to unlock the wealth of the business and create the future and legacy a business owner envisioned,” Robert Lee, CFP explained. Lee is involved with the Exit Planning Institute where they help businesses prepare an exit strategy. The recent survey results from the Business Owner Readiness Survey state that:
Seventy percent of companies put on the market today fail. Six in 10 respondents indicated that they had no exit planning advice or education. And 68% were either unsure or didn’t know of the transition options available to them. Lee further stated, “When business owners connect the concept that an exit strategy is a business strategy, they are more likely to embrace their decision to transition.”
Business owners find it challenging to be personally ready to transition. Owners often struggle to envision life after the business while focusing on growing their business. When asked in the survey “how ready the owner considered themselves personally for a major transition of their company,” 84% of the respondents said they were below average, or they were not ready at all for their personal transition from their company.
It is crucial for business owners to integrate business planning with personal and financial planning to increase the likelihood that their exit will be successful.
The Exit Planning Institute encourages business owners to take a holistic and focused approach to align the critical elements necessary to prepare for transition. Steps can include:
• Learn about the options on how to transition a business.
• Obtain a business valuation.
• Envision the next phase of your life.
• Establish an advisory team with your CPA, attorney, and financial advisor.
There is usually a better success rate and smooth succession when you have time to plan, choose your advisors and develop your successors. No one likes an emergency exit. Planning ahead will help in your day-to-day operations as well as give you a roadmap to guide you through the next steps.
There are resources to help you improve your readiness and advisors to help with financial reviews and valuations. Now is the time to prepare for your own future, even if it is many years away. You don’t want to be caught off-guard, and not be able to protect your legacy, family, and employees.
Patricia Kummer has been a Certified Financial Planner professional and a fiduciary for over 35 years and is Managing Director for Mariner Wealth Advisors.