The Problem With The 5-Year Exit Plan
Posted on March 27, 2020 by Joseph Worth
Most business owners who are asked about their exit plans will reply that they want to exit their business ‘in about 5 years.’ In reality, this 5-year window is a subconscious resistance to beginning the process of planning for an exit. This is a true statement evidenced by the fact that the same owner will – almost always – give the same ‘5-year answer’ when you ask them about their plans for an exit 5 years later. This article addresses an important issue for every owner-operator of a privately-held business… the tendency to delay the planning for your inevitable exit.
The Five (5) Year Exit Phenomenon
Most business owners will at some point be asked the question ‘when [and how] do you plan to exit your business?’ The most common answer given by owners is ‘in 5 years.’ This universal answer represents a number of interesting factors relating to the challenges associated with developing and executing an exit plan.
First – the 5-year window of time is, in many ways, a simple refusal to commit to anything immediate. This means that an owner who says that they will exit in 5 years is essentially saying the same thing as ‘I don’t have any idea how and when I will exit but if I say ‘5 years’ then this is enough time to begin to think about it at a later date.’
Next – the 5-year window can many times reflect an accurate amount of time that it will take for an owner to properly exit a business. However, if that owner does not take any action today, then the 5-year window will often times become an indefinite period of time before the exit planning occurs.
This occurrence then becomes the ‘rolling 5-year phenomenon.’
A Proactive Approach is the Only Approach
Business exits do not happen by themselves. Too many owners quietly rely upon a hope that something good will happen to them in the future. In fact, all too often, this type of complex exit planning does not occur without an outside motivating force compelling it to happen. With any luck, that outside force is an advisor or friend who counsels you to be proactive with your exit planning. Unfortunately, many owners will experience that outside force in the form of death (or sickness), disability or divorce – or just simple burnout. For good examples of these events and the impact they have on businesses and their owners, see Avoiding the Danger Zone: Business Illusions by Jerry L. Mills. All of these factors will diminish the value of what you receive at the point of your exit because you are being compelled to exit in a manner and time period that is not suited to your needs. Remember that a proactive approach to planning your exit is the only approach.
The Challenges Associated with An Exit
The hard fact to face is that most owners of private businesses lack the ability to see beyond their current situation of running their business. This leads to a natural delay in doing long-term planning such as ‘exit planning.’ This is particularly true during recessionary time periods, when the ‘going really gets tough.’
Why is this case?
Quite simply, the privately-held business owner has many challenges associated with planning for their eventual exit. The first and most natural question that an owner will ask when contemplating their exit is ‘who would run this business if I was not showing up every day’? This is a valid question as most owners have not implemented the systems and infrastructure to empower them to systematize the business so that is can run without them. But even if the business can run without the owner, can the owner ‘run’ without the business?
Are You Addicted to Your Business and Your 5-Year Exit Window?
Discovering whether you are too involved in your business is a very involved question that requires a bit of ‘soul searching’ for most owners. The fact is that most owners are not ready for an exit because they simply do not know what else they would do with their time, talents and energy if they were not applying those abilities to the running of their businesses. And, as mentioned, during a tough economic time it is very easy to ignore this systemic problem.
- Are you addicted to running your business?
- Do you have a rolling / permanent 5-year window?
This is a good question to ask yourself to begin the exit planning process. The real answer to this question requires a bit of time and reflection about ‘why’ you are in business to begin with. Did you start your business because you wanted to be independent and autonomous from previous employers? Or was there a more logical reason for starting your business – such as the fact that a well-built business would, one day, provide you with enough financial resources to be permanently independent to live a life of your choosing? There are many challenges associated with any business exit but the first one is recognizing why most owners fall into the trap of the 5-year phenomenon.
Overcoming the 5-Year Plague – Begin Planning Your Exit Today
The best way to avoid the loss of wealth and discomfort associated with losing your business to a phantom 5-year plan is to reject the idea that you cannot begin your exit planning today.
Unlike many attempts in the past to address this issue, there is now a system and process in place that is proven to get you results for your business exit. The marketplace of advisors is awakening to your need for this unique service and is ready to assist you with planning for a successful exit.
The money and time that you invest today in making your exit a reality will reward you with peace of mind and the knowledge that you have not fallen prey to the ineffective and non-existent 5-year plan that so many of your business owner counterparts will continue to falsely believe in.