Despite many owners’ hopes to exit their businesses within the next decade, most of them have avoided the planning required to do it successfully. This puts at great risk the value they have worked so hard to develop over the years.
Profit’s Entrepreneurial National Survey has uncovered some interesting statistics for small and mid-sized businesses in Canada. Out of that population, only 18% have a formal written plan for exiting their business, 38% have an informal plan in mind, but don’t have anything formalized, and a stunning 44% have no succession plan at all. Without a formal plan in place, it is hard to know where your business will go once you step out. Clearly, many business owners do not appreciate how difficult it can be to extricate themselves successfully.
The owners that have thought about succession are planning to exit their businesses through various ways: 25% expect to sell their business internally to management/employee s or to current business partners, 21% hope to cash out by way of a merger or acquisition by another company, and 24% expect to sell or give the business to family members.
Technical strategies are important for the preservation of wealth, but the people involved can have a much greater impact. Many business owners forget to take the time to assess the strengths and weaknesses of each potential successor to determine their ability to preserve the businesses value. As a part of a successful transition plan, personality assessments and recommendations are key.
Even more surprising, with an average age of 53, a solid majority of respondents intend to exit their business quite soon. 16% hope to cash out in less than 5 years, 44% intend to leave in 5 - 10 years, and 15% are planning their exit over the next 11 - 14 years. Even with a plan to exit via a merger or acquisition, most purchasers want the owner to remain the cornerstone of the business for the first few years.
Not only are the numbers important, but personal goals and aspirations should be an integral part of one's planning. No matter who is taking over, a family member, partner, or an outside buyer, healthy communication and reasonable expectations are extremely important. One's big picture should include the goals for the company, development of strong leadership, and dreams and aspirations for retirement.
The best thing one can do is get out there and get informed on business succession. Read books, attend seminars, and align with an experienced business succession planner.
Covenant Family Wealth Advisors' certified financial advisors and business succession planning experts help guide families through the technical and emotional aspects of managing wealth, estate planning and business succession. Our experienced financial management team uses a Christian perspective that is rarely found in traditional financial planning, and we work closely with you to develop a personal Holistic Stewardship Plan that encompasses financial planning, estate planning, family business transition and philanthropy.