"Failing to plan is planning to fail" is a popular quote often attributed to Benjamin Franklin, & it holds significant relevance when it comes to business owners preparing to transition out of their businesses. Transitioning a business will encompass various scenarios, such as selling the business, passing it on to family members, or just selling the assets & retiring. Without proper planning & execution, business owners are likely to encounter a host of challenges & obstacles that could result in complete failure or a less favorable outcome. In fact, only 1 in 20 business owners have no-regrets in their exit. Here's why failing to plan & execute will be detrimental for business owners & the statistics that illustrate the potential risks:
1) Lack of Preparedness: Without a well-thought-out plan, business owners will find themselves ill-prepared to navigate the complexities of the transition process. Whether it's identifying potential buyers, determining the business's value, or ensuring legal & financial compliance, a lack of preparation will lead to significant setbacks & delays.
2) Reduced Business Value: A lack of planning & execution will negatively impact the value of the business. Prospective buyers or successors will perceive an unprepared business as risky & will negotiate lower prices & unfavorable terms.
3) Emotional & Psychological Stress: Transitioning out of a business will be an emotionally charged process for business owners. Without a clear plan, the uncertainty & stress associated with the transition can be overwhelming, affecting their decision-making abilities & overall well-being.
4) Loss of Business Legacy: Business owners who have invested their time & effort into building a successful enterprise will want to ensure their legacy continues. Without proper planning & execution, there's a higher risk of the business losing its core values, culture, & vision after the transition.
5) Family Conflicts: In cases where family succession is desired, a lack of planning & execution will lead to family conflicts & disagreements over the distribution of assets & responsibilities. This will not only harm family relationships but also jeopardize the future of the business.
6) Statistically Stacked Against Unprepared Owners: Various studies & surveys have consistently shown that business owners who do not adequately plan their exit face terrible outcomes. For example, according to the Exit Planning Institute's State of Owner Readiness Survey in 2022, only 9% of business owners have a formal, written transition plan. Moreover, about 80% of businesses listed for sale do not sell, as reported by the Business Brokerage Press & for the ones that do sell 76% of owners have regrets.
7) Timing & Market Conditions: Business transitions require proper timing, which is often affected by market conditions, industry trends, & economic cycles. Without planning & execution, business owners will find themselves attempting to exit unprepared or in bad market conditions. Consider the CFIB prediction that 75% of Canadian businesses are going to transition ownership in the next 10 years. Planning can be quick, but execution takes time.
8) Legal & Tax Complications: Failing to plan for the legal & tax implications of the transition will lead to unexpected liabilities & expenses. Proper planning & execution will help optimize tax strategies & ensure compliance with relevant laws & regulations.
In conclusion, for business owners looking to transition out of their businesses in the next 10 years, failing to plan will result in a cascade of challenges & missed opportunities. Proper planning & execution, on the other hand, increases the likelihood of a successful & smooth transition, preserving the business's value, legacy, & the well-being of the owner & their family. The statistics indicate that being properly prepared significantly improves the odds of a favorable outcome during the business transition process. Planning can be quick, but execution takes time. If a business owner doesn't want to fail or have regrets, the time to start planning is NOW!!!