On a day that comes only once every four years, it can be easy to forget about Leap Day. The amount of planning, reviewing, revising, and collaboration that must have been involved in the 16th century when the Gregorian Calendar was created to include Leap Days every four years, must have been astounding.
As a business owner, how much time have you spent planning your exit from your business? Could you use an extra day… or a few years, to create a detailed transition strategy?
In honor of our “extra day” this year, we are sharing some facts about business owner exit readiness from the 2023 National State of Owner Readiness Report.
How Detailed Are Your Personal Plans?
Historically personal planning has been the most neglected aspect of exit planning and tends to be very emotional in nature. A commonly accepted industry statistic found by PwC research is that 75% of business owners profoundly regret selling their company just one year after selling it. In 2013, the respondents felt similar. 62% of the 2013 National Stat of Owner Readiness Report business owner respondents said they felt below average emotionally about the eventual exit of their company and transition into the next phase of their life. A data point leading to this emotional feeling by the 2013 respondents could point to 96% of the same respondents sharing they had no formal plan for life after their business.
In comparison, 41% of the 2023 National State of Owner Readiness Report business owner respondents stated they had a formal, written plan for what they would do after selling their company and 50% said they had an informal plan they had thought through. A complete shift in business owner perspective and planning. Leaving only 9% of business owners in 2023 that had no plans at all.
Are You Educated on Exit Planning?
Yet there is still work to be done. There is a difference between the business owner’s education and awareness level and their state of readiness and preparedness. The National State of Owner Readiness Survey relies on self-reporting from the business owners themselves when it comes to analyzing the readiness and preparedness factors.
If the business owner were to sit with a certified professional in exit planning, the professional would understand objective facts about the owner’s level of personal preparedness and their company’s readiness. Readiness must be determined from the buyer’s perspective not the current owner’s perspective. Though the survey certainly uncovers important details about where the business owners see themselves concerning exit planning.
The key difference between the original 2013 National survey and the 2023 survey is that the owner’s education and awareness level are tremendously different. The 2023 survey undoubtedly shows a high level of education and awareness which does play a contributing factor to their overall readiness.
Is Your Management Team Prepared?
Exit planning is present tense. An effective exit strategy is a business tool that will create more income today, empower management teams or the next generation to take the business to the next level, create owner independence, and potentially increase the owner’s wealth by 400-500%. In other words, exit strategy is simply good business strategy.
Owners can begin by integrating the actions of a successful transition strategy into the way they run their business every day. They can accomplish this by identifying what they have now and taking risk-mitigating actions to protect their value and thereafter their wealth. By strategically building value over time, they position the business to have multiple exit options and perhaps, multiple exit events over time. Owners must always actively and holistically manage their wealth including the business before, during, and after the exit event.
The first step to an effective exit strategy begins with understanding the value of your company. Management systems must be adapted to give the owner strategy and feedback on the value of intangible assets including human, structural, customer, and social capital on a regular basis. These are called the “4Cs” and account for up to 80% of a company’s value. Most accounting and management systems today do not provide feedback on the value of the business. Focusing on value first drives all other positive outcomes including increases in sales and profits.
Business planning should be integrated with personal and financial planning to ensure a meaningful and fulfilling exit for the owner. Identifying personal purpose, vision, and goals is essential for success in the next phase of the business owner's life, considering that 70% of owners deeply regretted selling their company.
Request the 2023 National State of Owner Readiness Report
Are you interested in learning more about owner readiness and how the Certified Exit Planning Advisors® (CEPAs) can help continue the improvements in owner readiness on a national scale?
Request the 2023 National State of Owner Readiness Report here.
