U ntil science cracks the code of immortality , 100 % of owners will someday exit their business . Despite this critical fact , many underestimate the importance and overall complexity and timeline for a successful exit . Estimates from financial planning data indicate that less than 10 % of business owners have a formal succession or exit strategy for their business .
In a survey from 2022 prepared by the Business Exit Institute , owners cited a range of reasons for not having an exit plan in place , including a desire to improve the business first , a belief that a plan isn ’ t needed , or a lack of time and money to pursue exit planning .
Planning Ahead vs . Forced Exit
Owners often envision an ideal exit scenario where the stars of personal and economic factors align . Yet , they frequently overlook the harsh realities of unexpected and unplanned pressures to exit their business , such as health crises , economic downturns , or changing industry factors .
Specifically in the trucking and transportation space , stimulus and consumer demand fueled record years in 2021 and early 2022 . However , this environment rapidly disintegrated with decreased demand , rising interest rates , labor shortages , fuel price spikes , and supply chain constraints , creating a perfect storm of challenges .
The benefits of preparing and planning in advance are plentiful . Even under ideal conditions , a proactive structure can increase the likelihood of success and maximize financial outcomes , particularly in the areas of overall valuation and tax planning .
The real value appears in circumstances outside the owner ’ s control . Here are some real calls that I ’ ve received in my role as a mergers and acquisitions advisor :
“ Sorry to bother you on a Saturday , but can we talk about the valuation you did for us ? I know we said we would revisit in a few years , but I was just diagnosed with Stage IV stomach cancer , and we will need to adjust that timeline .”
“ Are you available this afternoon ? My client ’ s husband passed away unexpectedly . She wants to sell his business and doesn ’ t know what to do .”
“ My wife has Parkinson ’ s , and we hoped our sons would take over the business . After some long discussions , moving back to Michigan from California would be too disruptive for them . We have significant medical bills and care needs that we need to solve as soon as possible .”
“ We have about 60 days of runway before we ’ re going to be in a bind to make payments and payroll .”
Fail to Plan , Plan to Fail
Much like running a business , the success of a potential exit or succession is primarily a function of strategic planning done well in advance of the exit . For generational or family businesses or businesses where the owner or founder is pursuing a first-time exit , there is often an underestimation of the time it takes to complete planning and an exit . In my experience , here are some real timelines for a sale or transition of a business :
1 . Initial Planning ( 12-18 months ): Define exit objectives , identify exit options and avenues , and develop a clear roadmap .
2 . Tax and Financial Planning ( 1-3 years ): Implement tax strategies and long-term financial planning , especially for owners who are retiring or transitioning to a family member or successor .
3 . Sale or Transition ( 1-10 years total ): Identifying the internal or external buyer , negotiating the terms of the partial or total sale , completing the transaction , transition , and closure of any notes , earnouts , or other performance-based requirements .
While these stages represent an average and vary , skipping these steps and processes completely can put a business in a position where the only viable option is liquidation . It can also limit the valuation or tax positioning related to that sale . Proper planning can also help owners to be on the right side of the discouraging statistic that 70-80 % of businesses on the market never sell .
When a seller faces an exit due to a stress point or factor outside of their control , having a plan is critical . Proactive planning can be one of the best tools in an owner ’ s toolbox to maximize outcomes .
SUMMER 2023 I customized logistics & delivery Magazine 33