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Exit Risks – By The Numbers

Exit Risks Owners Are Accepting by Default

Exit planning is one of the most critical components of owning a business, especially for owners of private and family owned businesses. Too often, small and medium size business owners have the majority of their wealth tied up in the business. If their reinvention plans beyond the business and their lifestyle moving forward depend on harvesting that wealth when they exit their business, they need a well-thought out exit strategy that addresses exit risks for the owner, the business, their team, their family and their finances. And they need to build and execute on that plan starting years before they cash out.

Most entrepreneurs are consumed with the day-to-day activities of running and growing their business (es). Making time for the strategic side, and delegating operational responsibility has not been prioritized. This lack of long-term planning has many unfortunate consequences that owners are therefore accepting by default.

Exit Risks

As advisors, we refer to many numbers when describing the exit risks that owners of private and family owned businesses face when they decide to monetize the business they built. A few of these ominous numbers which owners are indeed accepting by default are listed below:

  1. 90% of all private businesses do not have an exit plan.
  2. 75 – 90% of an owner’s wealth is tied up in their business
  3. Owners leave up to 50% of the value of their business on the table when they cash out.
  4. Owners don’t know how much value they give away until 2-3 years after the transaction.
  5. Only 13% of all possible business exit transactions are completed. 87% fail.
  6. Of that 13%, three quarters fail in the execution, integration and follow-through.
  7. Only 3% of sales of small and medium size businesses succeed.
  8. It takes 3-5 years to prepare a business, maximize valuation, and demonstrate that value before entering into a transaction
  9. It takes at least 6-9 months to complete the transaction process with many possible delays, detours and caveats. And if the business, team, personal and financial planning is not already complete, the transaction process can be put at risk.
  10. Owners who start exit planning, transition planning and reinvention planning in parallel can minimize (~1%) or eliminate the tax bite on any transaction.

The current seller’s market window is closing. Do you have time to maximize and demonstrate your peak value and cash out by 2018?

If the default option doesn’t fit your goals and dreams, email or call us to explore all your exit strategy options and reduce these risks for you.


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