Nearly 51% of small business owners in the U.S. are over 50 years old and their businesses employ over 25M people. Often referred to as the “silver tsunami” in the U.S. and Canada, we will see a large number of small businesses owners facing questions related to exiting their business in the next decade and what they do is important to all of us.
However, over 85% of small business owners do not have a plan to transition out of their business. Perhaps it is because the thought of not working or transitioning a business is a major life transition along with marriage, having kids, or moving. It’s hard!
What to do, where to start, and what to expect are typically at the heart of not taking any action. After all, half of the small businesses make it past five years and even less make it more than 10 years. Those that make it that far have invested a lot of time, resources, and their own money to make it work, and planning for the day when you are no longer operating your business may seem impossible.
This Is A Big Decision, Waiting Will Only Complicate Matters
A number of experts believe that baby boomers need to start planning, to help themselves, their employees and their community.
“If our nation’s baby boomers don’t get more focused on planning for the sale or transition of their businesses on an urgent basis, then we’ll have millions of citizens whose jobs and careers are in peril and millions more who will not be able to properly retire”
Jim Blasingame: Syndicated talk show host and author
When to exit is a personal decision and should be a thoughtful process. Some of the most important questions to consider:
- How long do you want to run your business?
- Are your business financials up to date?
- What do you believe is the current value of the business today?
- Who are likely acquirers?
- Is this a family business and have you discussed a succession plan with those you believe will take over?
- Is there an employee (or employees) that may want to buy the business?
- Are you willing to help train a new owner?
If you have yet to start the process, that’s okay, educating yourself about the process and the options available is a great first step! ExitGuide has a library of free resources available and sites such as the SBA provide other free resources to exit planning.
Preparing For The Unexpected Can Make A Big Difference
When business is going well, thinking about negative events is probably the last thing on your mind. After all, you probably have insurance to cover accidents or an event such as a fire. While insurance is helpful, it may not cover other effects associated with life events such as a health issue that may leave you incapacitated and unable to run the business or generate a need for cash to cover unplanned medical bills. No one likes to think about such events but they do happen and if you cannot operate the business you may need to exit quickly. In a situation such as this, knowing what the business is worth and the information you need to prepare to exit can make a huge difference.
By the year 2030, every one of the 74 million baby boomers will be over the age of 65, and with age comes the increase in health-related issues. Preparing for the future when you are in good health is one of the best things you can do for yourself. In the event that employees or family members need to assist in this process, they too will appreciate having a plan to follow for exiting the business.
Planning Ahead Allows You To Take Proactive Steps To Maximize Valuation
A number of studies on small business owners indicate that approximately 40% of financial assets are in their small business. If you have a clear understanding of what your business is worth today and a plan to increase the value of your business to meet your retirement goals, congratulations. You are in a very small minority. The time to get a valuation is not when you are planning to exit in a few weeks or months but well in advance. This allows you to understand where the business is today and create a plan to increase the value over time.
Engaging a small business coach to help create this plan and help you meet your goals is one way to tackle the problem of where to start. A small business coach can provide an objective view of the business and provide actionable steps as well as a level of accountability that many small business owners lack because they may not have a board of directors or formal advisors that larger businesses have.
Setting goals as well as implementing changes to increase and diversify revenue, streamline operations and maximize profits and increase cash holdings to cover necessary capital expenses are areas that will have a positive impact but also take time to put in place and see the benefit.
While 85% of small business owners may not have an exit plan in place, 100% of them will eventually exit. Bottom line is that it is never too early and it is not too late to prepare for you to take steps in preparing to exit your business.