“The best time to plan your business exit is when you first start your company.” — Lyle Boss
Even for those who love their businesses and aren’t that excited about retiring, most will need to leave at some point. Most business owners have, at best, only a vague idea of how to plan their exits properly. Or they make assumptions about their financial futures that may or may not be valid.
Over the years, I have seen business owner clients make many costly mistakes when creating their transition blueprints. Here are five of the most typical errors I see when I review exit strategies for my self-employed and small business owner clients.
It would be best if you avoid these common mistakes made by other self-employed people:
They are failing to plan at all.
- Most business owners have only a superficial idea of how they want their business succession to play out. While retirement consultants consider exit plans essential, only around 52% of businesses have one. When you factor in self-employed professionals like dentists and doctors, along with mom-and-pop-type companies, that number drops even lower. Businesses with written exit plans often fail to update them regularly and are relegated to back-burner status.
They are making too many assumptions about the exit process.
- Most business owners make a lot of assumptions when it comes to the succession process. For example, many professionals and entrepreneurs assume that they will be able to sell their companies or practices quickly and easily at the perfect time when the market for their particular industry is “hot.” Or, they assume that someone in their family — a son, daughter or grandchild — will want to run the business after they retire. Even if a family member does want your business, they may not have the qualifications or skillsets to run it successfully. It’s a sad fact the majority of family-owned businesses do not make it past the third generation.
Many business owners are “too busy” to prepare.
- When I talk to small business owners, it always amazes me how many of them are poorly organized, with messy financial records. Often, they cannot locate critical documents, insurance policies, tax records or receipts. To create an efficient transition plan, a high degree of organization is necessary. Otherwise, you risk overlooking critical data that can turn your transition into a nightmare instead of a smooth, efficient process.
They are failing to include their spouse and family in each stage of planning
- . An owner’s decision to exit their business involves their employees, vendors and support staff. This occurrence also directly impacts their spouses and families. As you sit down with your business exit strategist or financial advisor, you want to include all affected parties in the conversation. Your plans for retiring from the business should never surprise the important people in your life.
There’s often a failure to allow for the time it takes to exit successfully.
- Some people think that leaving their company will be as simple as putting a “for sale” sign in front of the business, listing it with a business broker or taking out a social media ad. The reality is that it takes time to assemble a team of CPAs, attorneys, retirement and income planners to ensure you get the best possible outcome. It will help if you don’t plan your transition haphazardly or when you are in emotional distress.
Summing it up. If you are a self-employed professional or small business owner, you should begin putting your succession plan together as soon as you can. When you have an established, written course of action before circumstances force you to exit, you will make better decisions when the time comes. You will be able to avoid many of the headaches associated with retiring from a small company.