Exit planning is a critical yet underestimated financial planning task. For most entrepreneurs and business owners, the value of business is at least 50% of the owner’s net worth; in many cases it is up to 80-90% of the total net worth. Exit planning focus on maximizing enterprise value.
Why exit planning?
- 2/3 of the US economy consist of small and medium size businesses
- Up to 80-90% of the owners’ wealth is tied up in the business
- Most business owners are looking for an exit in the next 5 to 10 years
- The majority of business owners have no formal transition plan
- After retirement, most business owners need financial security and freedom. Without a proper exit, this may affect the owner’s qualify of life and financial security.
Consequences of not being prepared:
- After a year after selling, most business owners regret their decision
- Most businesses in the market don’t sell and when they do, the buyer acquires it at a discount
- Most M&A brokers and professionals believe a business owner’s unrealistic expectations regarding enterprise value represent the biggest hurdle
- Only 30% of all family-owned businesses make it to the 2nd generation; 12% survive into the 3rd generation and only 3% make it to the fourth generation and beyond.
What is stopping business owners from exit planning?
- Misunderstanding
- Confidentiality and fear
- Undervalued
- Confusion
What events force business owners to engage in an unplanned exit ?
- Death
- Divorce
- Disability
- Distress
- Disagreement
Exit Planning is about building, harvesting and preserving a business owner’s net worth by maximizing enterprise value and transitioning at the right time.
