Planning Your Exit Despite This Tough Economy
Aug 30, 2010
It was recently said that talking to business owners about long-term planning in today’s economic environment is a bit like a doctor telling a critically wounded patient in an emergency room that ‘they need to exercise more and watch their diet to be healthy’. Of course, the emergency room patient is mostly focused on their short-term needs, such as fixing whatever put them in the emergency room so that they can go into a recovery mode and, hopefully, restore their lives to a normal status.
We all know what the problems are today with our small businesses – consumer confidence is shaken, purchases are down, accounts receivable are tougher to collect, everything seems more expensive, the banks will not lend us the money to meet our growing working capital needs, and, because this recession is almost two (2) years old, it all seems like it will never come to an end. These all seem like very good reasons not to be setting aside time for planning you exit. But that is a faulty assumption which can lead to disastrous results.
Ironically, this recessionary economy is one of the best times to be planning your exit because it is when you are focused on rebuilding your business
Here’s the thing about long-term planning . . . most of us don’t do it. The fact of the matter is that the American psyche is built around positive thinking and immediate action. Coupled with this issue is the psyche of the average business owner. The prevailing attitude of the average business owner is one of ‘invincibility’. And why not? After all, it is the small business owner who has defied the odds of success, defied this economy and remained positive despite all of the troubles of the last few years.
Most owners who believe strongly in a positive future and continued prosperity in their businesses do not take the time to consider long-term planning – after all, the future seems so distant and largely inapplicable to the issues facing them today. And because the economy is used as an excuse for their lack of planning, most owners leave their entire wealth and financial well being exposed to loss.
Let’s take a look at the 10-year cycle of business transfers to see why, despite the terrible economy, today is the optimal time to begin planning your exit.
The cycle of business transfers follows a rather predictable trend. And, right on schedule, the economy tipped downward in 2008 and continued this slide in 2009. The difference in this cycle was the severity of the downturn – this was not predictable. Few, if any, people recognized the amount that the major pools of wealth in this country were over-exposed to risk and were set for the dramatic correction that occurred.
Despite what has happened over the past few years, we need a context within which we can deal with this problem. When we project out over the next three (3) to five (5) years, we see that a ‘window’ for a business exit will open again. The question is, ‘will you be prepared to take advantage of this exit window or will you still be holding onto your business, without an exit plan, into the next recession?’.
This recent economic storm has broken the ‘status quo’ psyche for most owners. For the most part, owners now operate under a new thought process, one which says, ‘look, I’ve been through a number of these recessions before, but this one really hurt. I’ll survive it, but I don’t want to go through another one’. It is the inertia of the ‘good enough’ mentality that has been broken. And, the proper way to address this new reality of today’s economy is to begin doing some advanced planning against future contingencies. Beginning the process of developing an exit plan is a great first step in taking inventory of what has occurred and setting a plan to be ready for an exit prior to the next downturn.
So, one may ask, ‘why start today when the next downturn is years off?’.
The answer is that it can take many months to develop an exit plan and many more years to execute that plan. For example, it can take nine (9) to eighteen (18) months – or more – to sell a business. This, of course, assumes that the business is ready to be sold and that an outside buyer is willing to purchase it. Further, in the absence of any succession planning, a time period for grooming the next level of management is approximately five (5) years – again, if all goes well.
The problem here is that the owner who uses this economy as an excuse not to plan their exit will miss the opportunities that are available today. Not the least of which is the long stretch of time that it takes to properly prepare for and execute an exit.
In conclusion, most owners have always realized that, despite their best efforts, they are vulnerable to economic swings. This recession, however, carries with it the additional reminder for baby boomer owners that there may be only one (1) more exit window before they are 70 years of age, or older.
Since the majority of the average owner’s total wealth is tied to their business, it is more important now than ever to plan for your exit while still in the midst of this recession.
Don’t use this recession as an excuse for not planning. See through the difficulties of today and realize that this tough economy is the ideal time to begin planning your future exit.