Mistakes Owners Make When They Delay Exit Planning – A Baker’s Dozen / by Kerri
Lower middle market business owners risk the future success and likely demise of their business (90% walk away with nothing*). All because no one told them early exit planning is a better way to control the outcome and maintain more leverage in any transaction negotiation. The mistakes owners make when they delay exit planning are often very costly and sometimes irrecoverable.
Baker’s Dozen Mistakes
Here are 13 mistakes owners of private and family run businesses frequently make. They:
- Never align personal, financial, business, family, reinvention and exit objectives. When your objectives pull you in opposite or competing directions, indecision keeps you paralyzed.
- Misjudge their company’s true, transferrable value in the market place. Almost every business owner undervalues or overvalues their business to a potential buyer (financial or strategic).
- Avoid establishing an “Owner’s” Estate Plan. Putting an estate plan in place does not mean you will expire in the next 60 days. Rather it ensures your plans and intentions for the business survival, your team and your family are secure; regardless of what may happen to you someday.
- Neglect claiming and protecting all the intellectual property they have built up in their business. As a result, they leave the business and themselves vulnerable to unnecessary risks and lawsuit losses.
- Start and run their business long-term without any contingency plans in place to protect them and the business from partner disputes or ownership challenges.
- Use the business coffers as their own ATM, so there is no residual value in the business to attract new owners.
- Enjoy a lifestyle funded by the business which cannot be maintained when they sell the business. Their exit options and returns are limited by their personal or family wealth mismanagement.
- Resist marketplace changes and become rigid in their business model missing a market shift or new opportunities.
- Give up on finding or grooming a capable successor. Developing successors takes time, training, delegating and finally relinquishing control.
- Never prepare the company to be ready to transfer ownership.
- Claim excessive tax costs preclude planning for an exit, when the opposite is true. With early exit planning, owners can drastically minimize the tax impact of any transaction down to single digits.
- Postpone considering all exit options until it’s too late to execute most of those options and their choice is being dictated by time, health or other critical game-changing issue.
- Pursue the wrong exit option in the last 6-9 months. As a result, they run out of time, cashflow and opportunities to close an ideal deal to meet their exit criteria.
Now you know so you can avoid each one.
If you need help assessing your business or fixing these mistakes to put your business on a stronger path with early exit planning, call us at 508.820.3322 or email us.