The High Price of Not Making an Exit Plan – Part One
I don’t know about you, but I don’t have any plans to die anytime soon. Most of us don’t plan to and we would rather not think about it at all, given the choice. You are not alone. I used to be in the insurance business, and I know how hard it is for insurance agents to get people to focus on the impact their death might have on their family and businesses.
Most of the landscape business owners I know have (fortunately!) listened and purchased policies to take care of their family if something unexpected occurred. By the time the kids are grown, successful business owners will now have a significant portion of their assets tied up in the business and expect that if something happens to them, the business and other investments would take care of their spouse (and/or family) if they die.
Sadly, this is often not the case. Over the years, we have worked with surviving spouses and/or children who have been surprised by the death of the business’ founder and principal driver. In cases where the owner didn’t have an exit plan, the outcome is even worse for those who are left behind.
Suddenly, the only person with the definite idea of how to go forward may be gone. The gears grind to a stop in areas where only the owner was making decisions. Frequently, with no exit plan, there may not be a clear succession plan. There is often “an idea” or “understanding” between the owner and one or two senior leaders, but that may never have been documented or be clear as to what would happen in the event of his/her death. In the absence of a clear guiding force, it may be up to the widow or an adult child to take on the leadership role even if they don’t have all the facts. On top of the sorrow of losing a family member, the uncertainty adds financial risk for the family.
Without an exit plan, the business may not be in its best state to be sold to a third party. If the business was highly dependent on the deceased owner, buyers will be reluctant to invest. Without a strong number two running the business and/or significant bench strength, the value will be less. The owner may not have been keeping the clearest books and records, investing in the infrastructure needed to support the business or been unwilling to upgrade processes, people, and systems to fit the current reality. Employees and clients are often concerned about the future existence and health of the business. All of this sets up a situation that is less than ideal for the business to be sold and/or re-organized and continued.
Why do business owners allow this to happen? There is no shortage of reasons. Here are a few we hear often:
- Too busy working in the business.
- Avoiding problems in the business that will have to be faced if working on exit plan (especially in family run companies where there is not clarity among children and their roles going forward).
- Reluctance to deal with end-of-life issues.
- Not wanting to make commitments too “early.’
- Desire to continue with the current state of things since everything is going so well.
It’s true that working on an exit plan will require the owner to become educated about his/her options so that he can make decisions. This takes time and energy. But it’s also true that beginning the process will put the owner, the family, and the business in a much stronger position in terms of potential outcomes for the future. After all, fortune favors the prepared mind.
So where to start? Isn’t that part of the problem? I think so. Read next week’s blog to learn about the “big picture” of where to start and why you should be making decisions for your exit plan now to avoid the uncertainty and risk of dying unexpectedly.
It’s never too early to consider your exit plan. Once you have the right information about your choices, you can chart a path to your exit for maximum value and provide a smooth transition for your business, your family and yourself. Whether you have ten years or two years, there is value in knowing your best options.
If you’d like to have a discussion about where to start with your exit planning process or other topics about transitioning your business including selling, buying or preparing your business for sale, please reach out to me at 224-688-8838 or email me at [email protected].
We’re here to help you Harvest Your Potential!
