Business owners are facing a number of new challenges. Labor shortages, health mandates, government regulations and increasing taxation. But I propose the largest challenge facing business owners right now is their eventual exit from the business.
Baby boomers still represent most of our nation’s independently owned businesses. The youngest baby boomer today is 57. According to the 2016 Exit Planning Institutes (EPI) “State of Owner Readiness” survey, 4.5 million owners said they intended to transition within 10 years. Almost 50% of those surveyed back in 2016 intended to exit in the next five years. Many of these exits have been put on hold for obvious reasons. Nonetheless, these exits will eventually take place.
The wave of exits coming will far exceed the number of willing buyers. According to the EPI survey, 70%-80% of private businesses that attempted to sell in 2016, did not sell. In addition, for those who consider their business as “family business,” which most privately held businesses are, their success rate is no different. Only 30% survive transition from the founding generation to the second generation, 12% from the second to the third, and only 3% successfully transitioned to the fourth.
Don’t wait until you think you are ready to transition to begin educating yourself on your options. In my experience few owners are willing to consider becoming educated on their transition options until they decide they are ready to transition. This is the lost opportunity!
Most owners have 80-90% of their net worth tied up in their business. This is a massive risk to their wealth accumulation plans. In Stephen Covey’s book, “The 7 Habits of Highly Effective People,” habit #1: Be Proactive – Focus and act on what you can control and influence, instead of what you can’t. Habit #2: Begin with the End in Mind – Define clear measures of success and a plan to achieve them.
The tsunami of baby boomer exits is eventually going to hit the marketability of your business. Don’t risk losing the opportunity to convert your illiquid net worth to liquidity for future income and financial security.
Jan Graybill is CEO and managing partner of Allentown-based Legacy Planning Partners, which he founded in 1999. He can be reached at [email protected].
