Broker Check

Prepare to Monetize Your Business

If you are like most privately held or family held businesses, between 70% and 90% of your personal wealth is locked up in your business value.  Your ability to monetize this wealth at some point will have a significant impact on your financial security and your lifestyle once you do exit from your business. 

Failure to provide for the continuity of the business has an impact not only on your personal wealth but that of your family, as well as the future of all other stakeholders who depend on your businesses’ successful transition. 

Every owner will eventually transition from their business, the basic question you need to ask yourself right now is not “if” but “when” and whether you have created a business with transferable value that can run without you. 

Owner readiness and transferability are the two major business value drivers or killers. Getting ready now creates the ability to transition in the way you prefer, for the price you want, when you decide. 

Change your perception and change your world

An owner’s inflated perception of the business value is cited as the number one reason business transactions fall through and is a direct result of not being ready.  If you are constantly fighting business fires (matters of urgency) and working to minimize profits to minimize income taxes is it any wonder someone else including your next generation might not see the same value as you do to owning your business?  Consider spending time creating a sustainable, transferable value that someone else is willing to pay for. 

Time is running short

According to U.S. Census Data, 63% of privately held businesses are owned by baby boomers today.  This year the oldest is turning 73 and the youngest age 55.  Over the past few years “The Exit Planning Institute” has commissioned a series of regional business owner surveys across the country to find out where the average business owner was in the process of transition readiness.

In reviewing several of these surveys I found a common theme, that more than half of business owners today want to exit their business within the next 10 years.  As an example, in the Wisconsin survey from 2018, 72% of owners surveyed intend to exit in the next ten years.  But no one seem to be getting prepared.  43% from the same survey said they have not explored any transition options and another 80% said they have no written plan for their transition.

What would the sudden exit of the owner do to the value of these companies?  What would your absence do to the value of your business? Could your business survive?

To successfully transition, a business owner must consider working on three major issues: 1.) maximizing transferrable value; 2.) preparing financially for a lifestyle without the income from the business; 3) planning personally for what you will do (as a “third act”) after exiting the business.

What would the sudden exit of the owner do to the value of these companies?  What would your absence do to the value of your business? Could your business survive?

Some steps to take now

  1. Anticipate this process will take time.  As much as from 2-5 years.
  2. Obtain a business valuation to serve as a baseline for measurement.
  3. Build a transition advisory team.
  4. Find ways to make the business less dependent on you.
  5. Create an “Emergency Management Plan” that provides guidance on managing the business as well as transitioning the business in your absence.
  6. Review all business agreements, customer contracts, buy/sell agreements, retirement plan obligations, and any employment contracts with key employees.
  7. Review bank covenants and debt limits
  8. Review all liability coverages
  9. Review all insurance coverages
  10. Start a Financial Plan or have your current Plan reviewed by a Certified Financial Planner who can help you determine your “number” (the amount you will need from the sale of your business) and create an income strategy that will support your chosen lifestyle for the rest of your life.

Getting prepared for a transition may be the best New Year’s Resolution you can make!


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