The Exit Planning lnstitute’s Northeast Ohio Chapter partnered with Grant Thornton, PNC Bank, and the Ohio Employee Ownership Center at Kent State University in 2013* to conduct a survey of business owners. The goal of the survey was to ask business owners a set of questions around a broader and larger issue: how effectively (if at all) have you planned for the inevitable exit from your business?
The purpose of the survey fits closely with the core mission of the Exit Planning Institute, namely the creation of an all-inclusive, proactive process for accomplishing the objectives and goals of the exiting business owner. In order to do that, it was important to find out where the average business owner was in the process.
The report is composed of three major parts:
- a discussion of the major demographic data of the respondents;
- an overview of the major findings from the data, and;
- recommendations for the exit planning community, based on the data from the survey, to ensure the best results for their business owner clients.
Conclusion and Recommendations
A number of clear conclusions can be drawn from the survey, as well as a number of equally clear courses of future action for the advisory community.
- Business owners are not doing enough to successfully manage the “last, great test of entrepreneurship,” transitioning their business.
- Despite the focus on exit planning awareness by the business advisory community, the survey makes clear that we need to do a better job defining best practices, collaborating with other advisors, and educating business owners.
- The survey reinforces previous surveys on the topic.
The survey does provide a number of areas for concrete action to improve outcomes for business owners.
- It is vital that we move business owners to a more concrete version of an exit plan. In other words, the plan needs to be documented and communicated to all relevant stakeholders.
- The exit strategy needs to be integrated into the business strategy and internalized as a method for operating the business on a day-to-day basis.
- An education and outreach program to business owners (and family) is important to allow a business owner to understand and evaluate all available options.
- It is highly unlikely that in the next 10 years there will be enough capital to enable the number of outside transitions (sale to a third party such as private equity or strategic buyer) preferred by business owners. As such, owners will need to take a more serious look at inside transition options such as ESOP, management buyouts, and family or be forced to substantially discount the sale of the business to a third party.
- It is vitally important that the exit plan and estate plan be considered two sides of the same coin. It serves no purpose to have these two important aspects of a business owner’s retirement plan not be in sync, or worse yet, actively working against one another.
- Additionally (and related to the previous point), it is important to look beyond the financial aspects of the planning process to encompass the personal aspects of post-transition life for the business owner.
- Far too many of the survey respondents do not have a clear plan for this period of their life. When we ask why more entrepreneurs don’t properly plan for exiting their business, often the reason is that they have not been able to answer the following question: “What do I do next?”
- Finally, based on all of the above, it is very clear that advisors should strive to achieve a comprehensive, team based approach. No one advisor is capable of handling all of the above areas to optimal effectiveness.
The team at Legacy Business Advisors Mid-Atlantic is here to help you understand your “State of Owner Readiness.” Contact our team of experienced advisors to learn more by visiting lbamidatlantic.com.
*2013 “State of Owner Readiness” Survey 9 Copyright © 2013 Exit Planning Institute. Full report prepared by Chris Cooper, Ohio Employee Ownership Center, Kent State University