Recent research suggests that 60% or more of business owners have no exit strategy, and no plan to develop one. With so much time devoted to running the business, it’s no wonder that so many business owners struggle to think about the future. Each CEO is different, but understanding the reasons CEOs fail to plan for the future can help with correcting this common error.
CEOs face an endless stream of time demands. This can leave little or no time for other pursuits. Owners often put off succession planning to focus on other aspects of running the business and to seek new ways to enhance value. Though increasing value is a key to successful M&A, planning for the exit itself is every bit as important. Most owners know that creating a succession plan demands time. It may take months or even years. Owners who are within five years of retirement or another transition must begin planning now.
Difficulty Handing Over the Reins
Owners have spent decades in control. Planning to give up that control can be difficult. They may worry about operational challenges, their legacy, or how the company will change after they leave. Owners are especially likely to worry about ceding control if they play an integral role in daily operations.
Complexities of the Deal
Owners must make many decisions about how to sell the business, which includes exploring the financial implications of each option. With numerous possible structures, many buyers, and a myriad of tax considerations, it’s easy to become overwhelmed. The support of a skilled M&A advisor can help remove some of the complexity and stress owners face when it comes time to sell.
Retirement is a major milestone, and a significant transition. People who have spent their entire lives building a business may feel lost when they leave this world. Others face financial anxieties. Most owners want to leave their business armed with a nest egg that allows them to support their families for the rest of their life. Determining how much money this will require is no small feat. Some CEOs avoid thinking about it, thereby potentially eliminating sale value by failing to plan.
Exit planning is not the end. It’s the necessary prerequisite to potentially being able to walk away. It doesn’t mean an owner has to leave. Owners who view exit planning as a way to avoid inadvertently closing doors may feel more motivated to embark on this important work.
About Madison Street Capital
Madison Street Capital is an international investment banking firm committed to integrity, excellence, leadership and service in delivering corporate financial advisory services to publicly and privately held businesses.
Over the years we have helped clients in hundreds of industry verticals reach their goal in a timely manner. Our experience and understanding in areas of corporate finance and corporate governance is the reason we are a leading provider of financial advisory services, M&A, and valuations. With offices in North America, Asia and Africa, we have adopted a global view that gives equal emphasis to local business relationships and networks.