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FEATURE –The best time to plan your business exit is when you are starting your business for the first time.
Even for those who love their business and are not that excited about retiring, most have to leave at some point. Most business owners have at best a vague idea of how to properly plan their outings. Or they make assumptions about their financial futures contracts that may or may not be valid.
Over the years I have seen business owner clients make many costly mistakes in creating their transition plans. Here are five of the most common mistakes I see when reviewing exit strategies for my self-employed and small business owner clients.
Can’t plan at all
Most business owners have only a superficial idea of how their business succession should play out. While pension advisors consider exit plans to be essential, only around 52% of companies have one. When you factor in self-employed professionals like dentists and doctors, as well as mom and pop businesses, that number drops even further. Companies with written exit plans often do not update them regularly and are referred to Backburner status.
Make too many assumptions about the exit process
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Most entrepreneurs make many assumptions when it comes to the succession process. For example, many professionals and entrepreneurs assume that they can sell their companies or practices quickly and easily at the perfect time when the market for their particular industry is “hot”. Or they assume that someone in their family – a son, daughter, or grandchild – wants to run the business after they retire.
Even if a family member wants your business, they may not have the qualifications or skills to run it successfully. It’s a sad fact that the majority of family businesses don’t make it past the third generation.
“Too busy” to prepare
When I talk to small business owners, I keep wondering how many of them are poorly organized and have messy financial data. Often times, they cannot find critical documents, insurance policies, tax records, or receipts. A high level of organization is required to create an efficient transition plan. Otherwise, you run the risk of overlooking important data that can make your transition a nightmare rather than a smooth and efficient process.
Failure to involve spouse and family in any planning phase
File photo from Unsplash, St. George News
An owner’s decision to leave their business affects their employees, suppliers, and support staff. This event also directly affects their spouses and families. When you sit down with your business exit strategist or financial advisor, you want to include all affected parties in the conversation. Your plans to get out of business should never come as a surprise to the important people in your life.
The time it takes to complete it successfully cannot be taken into account
Some people think that leaving their company will be as easy as putting a “For Sale” sign in front of the company, listing it with a business broker, or posting a social media ad. The reality is that it takes time to put together a team of CPAs, lawyers, age and income planners to ensure you get the best possible result. It is helpful when you are not planning your transition arbitrarily or when you are in emotional distress.
Sum it up
If you are a self-employed professional or small business owner, you should start creating your succession plan as soon as possible. If you have a set, written course of action before circumstances force you to quit, you will make better decisions in time. You can avoid many of the headaches associated with leaving a small business.
Copyright © Lyle Boss, all rights reserved.
Lyle Boss is a member of Syndicated Columnists, a national organization that advocates a fully transparent approach to money management. As an asset protection educator, he has helped thousands of seniors manage their financial retirement options. Its clients include government employees, teachers, doctors, farmers and executives, to name a few. Boss has been actively teaching advanced estate planning and wealth preservation for more than 20 years in locations like the University of Utah and in over 200 Senior Retirement Consumer Education Workshops in Utah, Idaho, and Wyoming. Boss and his wife Deanna live in South Ogden and St. George, Utah.
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