The Business Owners’ Special Series (B.O.S.S.) No. 21
When people think about retirement, they often imagine relaxing on a beach, somewhere warm, with a tropical drink in hand and no cares in the world. However, retirement tends to last much longer than the time one could spend in a lounge chair. Business owners who retire at age 60, and are in good health, could live 30 to 40 years after they sell the business.
For many, that could be more years than they actually owned and worked in their business. To ensure you are fulfilled after you exit your business, you need a post-exit plan in place, and you need to test that plan before you exit your business.
Over 70% of businesses that go to market fail to sell. Why is that number so high? Investment bankers say it is because many sellers have a grossly inflated opinion of the value of their business, and that makes deals impossible to close.
Personal financial planners say some owners do not engage in the necessary financial planning prior to sale, and then they back-out of the sale transaction, as they realize the sale proceeds would not be sufficient to fund their living expenses for the rest of their life.
There is a third reason why business owners who go to market fail to sell. This reason is not often discussed, because business owners do not want to acknowledge it in their business plan. After closing a sale transaction on Friday afternoon, they do not have a plan for what they will do on Monday morning, or any other morning for the next 30 to 40 years.
Some very astute business owners prepare their businesses for sale, make certain they can afford to retire, close the sale for a satisfying price, and yet they forget to plan for what they will do after they exit their business.
Business Exit Planning: What Did I Leave Behind?
In anticipating their exit, business owners see themselves walking away from mountains of work, pressure, anxiety and all the headaches of running their business. They think about how much time and energy their business consumes, and they are initially excited to get their life back. However, they do not consider all the positive things they will also leave behind with their business.
1. Social Connections:
They often leave behind their social connections with staff, vendors and customers. Sometimes they were the boss, and often they were also mentor, advisor and confidant. After they exit the business, a large portion of their social network vanishes overnight.
2. Intellectual Stimulation:
Business owners are continually being challenged, as they face ever-changing marketplace conditions, regulations, competitors, technological changes and countless other situations. They are constantly solving problems, rethinking their business strategy and being intellectually engaged at all times. After they exit their business, that source of intellectual stimulation is suddenly no more.
3. Passion, Energy and Creativity:
Being a business owner and growing the business gives them the daily motivation to wake each day and drive their business to the next level, discuss new ideas with key managers and take on all challenges. They started their business with an idea, and they had the passion and determination to pursue it, create it, build it and make it better every day. Upon exit, that source of passion, commitment and energy will likely disappear.
Once the business owner exits their business, they need a plan to replace the social connections, intellectual stimulation and their source of passion and purpose. Without such a plan, many business owners and retirees suffer a sense of loss, and in some cases depression. Building a successful business was the owner’s manifest destiny and their sense of purpose. Then suddenly, the business is gone and retirement begins.
When we discuss what our clients will do after they exit their business, these are the common answers we hear:
1. I will travel more:
Great start. This can be inspiring and renew your sense of passion. But you must ask yourself: how much travel will you do, what will you do between trips and how long can you afford it? What happens if a health issue arises?
2. I will spend more time with my grandchildren:
Spending more time with your grandchildren can be extremely satisfying and is always time well-spent. After those few early years, the grandchildren will be in school five days per week, consumed with extracurricular activities and homework after school and on weekends. Is spending time with grandchildren the plan, or is it one tiny piece of the plan?
3. Golf. I love golf, and I never played enough golf when I owned my business:
Post-exit life is a wonderful time to pick up those clubs and any other hobbies you curbed while the business consumed your day. How many days can you golf before it starts to feel like too much? Hobbies are a prefect plan in some cases. In other cases, it may be just a small part of a plan.
Before settling on your post-exit plan, spend some time reflecting on them before you actually exit your business. Test them, if possible. Spend five consecutive days with the grandchildren, or five consecutive days golfing. Can you pursue these activities, daily, for the remainder of your life?
Reflect on what hobbies you have outside the business, or what hobbies you gave up when you began to dedicate your life to your business. Think about what alternative careers you almost pursued.
Resources for Post-Exit Planning
Going into a sale or exit from your business without a post-exit life plan is not recommended. However, designing and implementing a successful post-exit life plan that will fulfill you in the areas discussed above is far more difficult than it sounds. Here are a few resources that may give you some ideas and help you design your post-exit life plan:
1. Your Retirement Quest by Alan Spector and Keith Lawrence.
This book provides a practical approach to thinking about your life beyond your business exit and retirement. It includes research, thought-provoking questions, exercises and worksheets. This book provides a good framework for beginning to think about your post-exit plans.
LifeScape at https://yourretirementquest.com/ is sponsored by the authors of Your Retirement Request. It offers many resources and ideas that can help you develop a more meaningful post-exit plan for life.
2. Bolder by Carl Honoré.
This book is more inspirational than it is practical. However, it is full of wonderful stories of people who never thought of retirement as an “ending.” It is helpful in re-thinking how we view retirement, and potentially making it the most inspiring time of our lives.
3. Encore at https://encore.org/ is a nonprofit organization that helps individuals who are over age 50 find purpose through meaningful activities that impact the lives of others.
Many so-called exit planning advisors focus solely on the transaction for the sale of the business. However, a complete and thorough exit plan should begin with the owner, not the business. It should focus first on the life-goals of the owner, including plans for the duration of the owner’s life after exiting the business.
The business is merely a tool in achieving those personal life goals. Prior to exiting their business, every business owner should have a thorough, practical and realistic post-exit life plan.
Any exit strategies for selling or exiting a business that does not include a comprehensive post-exit life plan is not an exit plan: it’s only a transaction plan. Focusing only on the transaction does the business owner and their loved ones an incredible disservice, and it may leave the business owner unprepared for a long post-exit life.
Rich Gunn leads BPM’s Value Acceleration Service Team, which helps with succession planning, transition business exit strategies and exit planning for business owners. Rich is a Certified Exit Planning Advisor and a member of the Exit Planning Institute.
The Business Owners’ Special Series (B.O.S.S.):
The Business Owners’ Special Series (B.O.S.S.) is a library of information for business owners who are proactively seeking guidance from experts on how to implement value acceleration in their business. Be sure to keep reading, if you desire to develop your business to its maximum potential value and gain an understanding of how and why beginning the process sooner results in building greater value.