“I never worry about action, only about inaction.” – Winston Churchill
Have you ever said or had these thoughts? …
“I haven’t decided what I want to do with my business, when I want to leave it, or how much money I’ll need. Besides, I’m too busy, so why would I bother acting on it now?”
If this rings a bell, then you’re not alone.
It is common for business owners to be overwhelmed by the thought of transitioning out, or become so busy fighting daily fires in their businesses that they assume they cannot plan their transition.
So if you’re unsure about your future business transition, why is it important to act on it today?
The Facts of Time
The first fact of time is the irrefutable truth that all business owners will—one way or another—leave their business someday! When owners have a passive attitude towards this fact, they are really settling for less than the most profitable transition for themselves and their families.
That’s because preparing and transferring a business for top dollar takes time: on average, 5–10 years. Most of those years will be spent preparing the business for the transfer or, if the owner decides to sell to employees or children (two groups who rarely have any money), giving them time to earn the money to pay for the owner’s interest.
The more time owners have to design and implement income tax–saving strategies, build value, strengthen management teams, and begin a gradual transfer of ownership (not control) to key employees or children, the more likely they are to reach their goals.
Another fact relates to market timing, i.e. the market does not operate on an owner’s schedule. If an owner decides to sell to a third party, the market may not deliver the peak price desired by the owner at that time.
Which decision for your future?
So if the prospect of leaving your business with little to show for all of your time and effort spent over many years is unacceptable to you, then let’s look at your three options: –
1. Wait for a buyer
Owners who wait for a third-party offer for their businesses believe that one day, a buyer will contact them, negotiate a fair price, and that will be that.
This is certainly a course of action, but one that flies in the face of reality.
There is a pent-up supply of businesses owned by baby boomers who, given the reality that age is not their friend anymore, are clamouring to sell their companies. The simple law of supply and demand implies which kind of market sellers will face. In a buyer’s market, only the best-prepared businesses sell for top dollar.
The owners of those well-prepared businesses have usually made one critical decision that gives them the distinct advantage … they decided to prepare their companies years ahead of the actual sale.
2. Liquidate
Liquidation is a common exit path for owners of asset-based businesses whose cash flow is declining and has little probability of improving, absent the design and execution of an alternative Business Transition Plan.
If this description fits your business, I recommend you meet with your tax and other advisors to do the planning necessary to create the most tax-efficient and controlled liquidation possible.
3. Decide to transition and plan accordingly
You realize that business transition is not only the best option for your future, but it is also a great business strategy. You decide to start your transition planning today and take the following steps:-
- Step 1 - Determine your business, financial and personal goals.
- Step 2 - Assess where you are today in relation to each of those goals, and identify the gaps that are holding you back from reaching them.
- Step 3 - Strategize how you will close the gaps in the timeline you desire, and use skilled advisors to help forge a business transition plan with accountability/decision deadlines.
- Step 4 - Action the plan
You and your family depend on the success of your business transition. Your failure to plan and act can result in a breathtaking loss to your future freedom and happiness.
Can you really afford not to act?
The information contained in this article is general in nature and is not legal, tax or financial advice. For information regarding your particular situation, contact a lawyer or a tax or financial professional. The information in this newsletter is provided with the understanding that it does not render legal, accounting, tax or financial advice. In specific cases, clients should consult their legal, accounting, tax or financial professional. This article is not intended to give advice or to represent our firm as being qualified to give advice in all areas of professional services. Master Planning is a discipline that typically requires the collaboration of multiple professional advisors. To the extent that our firm does not have the expertise required on a particular matter, we will always work closely with you to help you gain access to the resources and professional advice you need.
Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity.
