Many business owners love the businesses they’ve founded, whether it’s because of the work they do, the changes they effect, the money their business provides, or something else. When you carve out a comfort zone within your business, you might question why you would want to plan to leave your business at all.
In this article, we’ll look at a few reasons why owners who love their businesses should still make plans to leave.
Post-business life usually isn't cheaper
Financial security is an absolute must for many business owners who intend to leave their businesses before they die. While you run the business, you pull a salary. You might use perks like business vehicles, insurance, and travel. Perhaps you take advantage of your personal clout as a successful business owner. Once you transition from the business—by choice, death, or otherwise—those things tend to go away.
A strange but relatively common mindset for business owners is the idea that they can cut back on their spending once they’ve transitioned out. This is seldom the case. If you transition by choice, you’ll likely spend at least 75–90% of what you spent when you owned the business. You may want to travel, lavish your family with gifts, or set your grandchildren up for university: all without the safety net of a steady income provided by the business.
In short, post-business life is usually as costly as life before the transition. Even if you don’t intend to leave for 5–10 years (which is a target timeframe for many owners), you’ll likely need to know whether you can maintain your current lifestyle once you do leave.
You can begin to determine your financial situation in a few ways.
You can establish your goals and estimate what it will cost to achieve those goals. You can determine the gap between the money you have and the money you need to achieve those goals (called the “Wealth Gap”).
You can also compare that gap to the current value of the business. Once known, enhancing value drivers can then allow you to sell or transfer the business for the amount you need to close the Wealth Gap.
All of this requires time. So, even if you love your business and don’t see yourself leaving for several years or even decades, it’s in your best interest to start planning for that eventuality now. Because post-business life usually doesn’t get any cheaper.
Planning lets you focus on what you love
Many business owners often find themselves doing things they never imagined doing within their business.
Some of those unexpected activities are things they’d rather not be doing. For example, an introverted owner might find that they need to be the face of the business. A key focus of planning is finding the best people for the right job so that you don’t have to be everything to everyone.
A common way to do this is to find or train next-level managers. Next-level managers take on many of the responsibilities you likely find yourself stuck with. Oftentimes, those next-level managers can handle those responsibilities better than you can if for no other reason than you simply aren’t passionate about those responsibilities.
The flip side of this coin is that with proper planning, you can position yourself to do only what you truly want to do: the things you likely started the business to do in the first place. This can make ownership even more fulfilling and let you focus on the things you enjoy as you begin winding down your ownership.
Life goes on
About 10% of owners say that they want to die at their desks. Surely, planning is unnecessary for them, right?
That’s usually not true.
Even owners who plan to die at their desks often have people or causes they care about that the business directly affects. You may have family members who rely on the business to maintain their lifestyles. Without proper planning, what happens to them? You may want to ensure that after you die, your employees still have jobs (or a safety net that gives them time to find new ones). What happens to them without proper planning?
Even if you plan to die at your desk, planning for future success can still be valuable to you.
You can install business continuity plans that can give people you care about direction regarding what happens to the business once you die. You can install next-level managers whose goals and managing styles align with your values-based goals. You can even help your family continue to maintain their lifestyles without the business.
And don’t forget that 50% of business owners don’t get to choose when to leave their business due to the “5 D’s of Despair”, namely death, disability, divorce, disagreement and distress. The owner who plans to die at their desk has another 4 “D’s of Despair” that may compromise that plan.
This makes planning NOW even more important to ALL business owners, whether they plan to stay in the business until their last breath, or plan to transition out of the business at some time in the future.
The information contained in this article is general in nature and is not legal, tax or financial advice. Contact a lawyer or a tax or financial professional for information regarding your particular situation. The information in this newsletter is provided with the understanding that it does not render legal, accounting, tax or financial advice. Clients should consult their legal, accounting, tax or financial professional in specific cases. This article is not intended to give advice or represent our firm as qualified to advise on 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 for illustrative purposes only. Examples may include fictitious names and may not represent any particular person or entity. This article has been sourced from a licence agreement with Business Enterprise Institute, Inc.
