In our last blog we discussed two situations in which it’s better to stay in your business rather than exit. In this blog, we will be talking about the opposite: why too many owners stay in their companies beyond the time it would be useful and profitable to exit. The reality is, the vast majority of business owners aren’t prepared for an exit, and most of them haven’t begun to think about or prepare for one. Why not? Why do owners stay too long?
Emotional Reasons Owners Stay Too Long
Many owners have spent years building their companies and during that period they built up a sense of self that is entirely wrapped up with their role as the leader of the company. There are different facets to being personally and psychologically invested in business ownership. An owner may, for instance, view retirement as confirmation of old age. If this is the case, he may resist any efforts to get him to retire because, in his mind, it means his life is over or nearly over.
Other people may not know who they are or what they would do outside of their business. Without the need to get up and go to work in the morning, what is there, they wonder? No one wants to live a life absent meaning or direction, and many owners have spent so much time working on and in their companies that they haven’t developed hobbies or outside interests. For them retirement is looking into the void. It’s too scary.
Some owners love their jobs. They have enough energy, and the work brings them enjoyment. It’s very difficult to talk someone out of doing something they love. A good exit planner will not try to manipulate an owner who is happy into leaving but will urge him to strengthen the company and set up a management structure for the day when he is ready to retire or sell the business so he will have all the options available at that time.
Finally, there are owners who put off thinking about selling their businesses because they know that it will affect people they love and they don’t know how to leave and provide for them, divvy up assets fairly, or not disappoint them. So instead they make excuses.
A very common response that owners will give when you ask them if they have thought about retiring or exiting is to say, “I don’t have time to think about that. Keeping my business going take all my time and focus!” Unfortunately, if the company is very owner dependent, that may actually be the truth. That’s bad news for the owner and the business.
Financial Reasons Owners Stay Too Long
There are also financial reasons owners put off retirement. Again, people procrastinate if they have anxiety about something they don’t understand very well. This is true for exit planning. Too many owners will put off exit planning because they mistakenly feel that they will have enough money down the line because they have enough money to live comfortably now. They do not want to crunch the numbers because in the back of their minds they think the math might reveal something bad. The problem with this approach is that for most owners, if they do not crunch those numbers and make changes well in advance of an exit, the numbers very likely will be bad – or certainly worse than they could be with some planning. Why is this?
- Owners underestimate the money they will need from a sale to live comfortably in retirement or finance a new venture.
- Owners overestimate what their other investments will pay out.
- Owners believe their companies are worth more than they actually are because they have not had a proper business valuation done or do not have a current business valuation. Because they do not know the real value of their companies, they think they will realize far more from a sale than they actually will.
If you’re an owner who does not have a very good idea of what your business is worth and what you can expect to realize from a sale, you are unprepared for the future. You are taking a chance on what is probably your greatest financial asset because you aren’t willing to begin the exit planning process.
When business owners stay too long in their companies, they miss other opportunities. They might miss the opportunity to realize the best purchase price for their companies. They might miss opportunities to pursue other interests in their lives and time with their families. They miss opportunities to strengthen their businesses and make them more viable for the future. If you’re an owner who has been procrastinating about planning for the future, now is the time to take the first step. For help navigating the exit planning process, contact Prometis Partners today. That’s what we are here for.