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By Understanding Entrepreneurial Business Owners Better
An estimated seven million baby-boomer business owners will exit their companies over the next 20 years. How can valuation advisors assist these entrepreneursâ€™ transition? When you are ready to exit from your own company, how can you transition most successfully for both your maximum financial outcome, as well as your personal satisfaction? In this article, the author describes the process of personal transition planning and shares his thoughts on how to become a trusted transition advisor.
An estimated seven million baby-boomer business owners will exit their companies over the next 20 years.Â How can you, as a CVA, take advantage of this growing wave so that you actually develop new business opportunities from these transitions? Â When you are ready to exit from your own company, how can you transition most successfully for both your maximum financial outcome, as well as your personal satisfaction?
The process of personal transition planning can successfully answer these questions.Â Personal transition planning will benefit business owners while opening up new business opportunities for you.Â If you are thinking about leaving your own business or firm, you can benefit personally from engaging in your own personal transition planning.
The Awareness Factor
A major reason owners fail to make successful business transitions is a lack of self-awareness causing them not to know what emotional and psychological issues are holding them back from thinking about what they are going to do with their businesses or the next stage of their lives.Â Bo Burlingham wrote in the book Finish Big, which describes how great entrepreneurs exit their companies on top, that: â€śNothing will have a greater impact on your business than having a deep knowledge of yourself…Owners who know themselves tend to make better decisions, build better companies, become better leaders, and have more rewarding business careers than those who donâ€™t. Â They are also far more likely to have happy exits.Â Thatâ€™s because theyâ€™re able to develop a good sense of where they want to wind up, which is impossible if you donâ€™t have a high degree of self-awareness.â€ť
Qualitative issues are as important as quantitative considerations.Â This is because psychological and emotional issues often hold business owners back from beginning the business evaluation process, actual planning, and engaging in the transactional processes.Â As your business evaluation services focus on the quantitative aspect of the business, founders need to do a personal qualitative evaluation so they know their business goals, which provides them clear objectives to aim for in the exit planning process.Â As the business needs to be prepared for transition to new ownership, so the owner needs to become intellectually, emotionally, psychologically, and spiritually prepared to think about, and make a smooth transition into, life without the business.Â At this stage of their lives, high achieving owners need to use their goal orientation to maximize the value of their business and maximize their sense of personal value so they have a solid foundation to build a new, post-ownership life.
The Heart Issues
Selling or transitioning out of oneâ€™s business is fraught with emotional anxiety.Â In order for owners to transition successfully, they need to do an objective appraisal of what is motivating them to leave, and ways to deal successfully with the complexities involved in making the major life transition of departing their companies.Â They especially need to avoid the debilitating distress of exit remorse and the depressing effects of post-transaction stress disorder, which can cause them to experience boredom, desperation, and even an increased chance of dying prematurely after leaving their companies.
- The Identity Factor: It is hard for many owners to leave their companies because the business is their â€śbaby.â€ť For many owners, their lives are identified with being a business owner, and they think they will lose their personal identity once they no longer own a business.Â They may view their lives as irrelevant after leaving, feel they will lose status in their communities, and dread the day they call up other business owners they used to know, only to be given the â€śbumâ€™s rushâ€ť because they are no longer â€śplayers.â€ť Â When an ownerâ€™s personal identity is fused with their business, it makes it hard for them to view their companies separately in order to do what is needed to improve its value.
- The Fear Factor: Unacknowledged fear is often responsible for owners procrastinating about what to do with their companies. Fear can also cause them to walk away from the sale of the business due to emotional misgivings.Â An owner can suddenly experience sellerâ€™s remorse and unexpectedly cut off the transaction process, which can incur legal and financial costs, reduce the chance of selling the company in the future, and increase employee turnover.
- The Death Factor: Many owners view the prospect of leaving their business as a kind of death, which prevents them from even thinking about creating an exit strategy. However, not having a plan for post-ownership life can cause owners to want to die at their desksâ€”and that is sometimes where they end their lives.
The Achievement Factor
Entrepreneurial owners have a strong need for achievement, which is often reflected in their feeling that they are only okay when they succeed, and the belief that work is their lives.Â They are so focused on checking things off their to-do-list that they avoid taking time for self-reflection, which causes them to be unaware of what is mentally and emotionally holding them back from the very thought of leaving their companies.Â Many owners feel that processing feelings is a waste of time and that they will not get much accomplished by focusing their awareness inwardly.Â Yet, only by knowing who they really are will they be able to know what they really want to do with their companies.
The Time Factor
Many owners believe it is too early or they do not have the time to plan what they are going to do with their businesses, or with their lives, after leaving their companies.Â Owners often think it will take no time to sell their business.Â The fact is, if owners fail to take the time to plan, they have created a plan to fail.Â Overnight transactions are not based in reality. Â Owners will need time to meet with professional advisors such as credentialed business valuation advisors, accountants who are CPAs, business and estate lawyers, financial planners, etc., with expertise in the succession and exiting process.Â It also takes time to create a strategic game plan so the owner can get the company into the best business and financial shape possible in order to realize the maximum amount of profit.
The upside of successful entrepreneurial business people is that they are risk tolerant, yet the downside is that their acceptance of risk does not motivate them to plan what to do with their companies, or their lives.Â They feel the risk of not knowing is more desirable than the emotional pain that might be triggered by the very thought of transitioning themselves or their business to new ownership.Â Yet, the risk factor is steadily increasing, because the supply of businesses that will be up for sale by baby-boomers will outnumber potential buyers in the near future, which will reduce the value of their companies.
What Transition Planning Can Do For Ownersâ€”And For You
A transaction does not happen until an owner makes a conscious decision to transition out of the company.Â Just as a successful business reflects well thought-out ideas about growing oneâ€™s business, owners also need to think about and decide, â€śHow do I want to leave my company?â€ť Â Data shows 75 percent of baby-boomer owners who have already exited their companies report regretting leaving.Â This happens because they did not make well thought-out exit decisions, were not aware of all their options, and did not develop a plan for their lives after leaving their companies.
The Head Issues
Owners have created their companies and worked hard to make them grow.Â An owner who has put so much time and energy into building the company wants to ensure costly mistakes are not made at this stage.Â By applying the power of intentional planning, owners can be clear about both their business and personal objectives for leaving their companies in the next five to 10 years, develop clear, concise strategies to maximize return, reduce risk, and maintain their sanity in the process.Â The more they can wrap their minds around the idea of leaving, the more clients you will have.Â Owners who engage in transition planning are able to deal successfully with both the â€śhardâ€ť and â€śsoftâ€ť issues involved in transitioning out of a business.
An owner who does not engage in transition planning can experience â€śownerâ€™s indecision,â€ť which can divert time and attention away from running the company, lead to loss of sales revenue, and hamper your efforts as a business evaluation expert.Â Lack of planning and the ownerâ€™s indecision can also reduce a companyâ€™s profits, or cause an upward capital cycle to be missed, leading to loss of business value.
There are five ways entrepreneurial owners make decisions.Â These five styles determine the business and personal goals they want to achieve, how they obtain information about the issue they have to decide on, assess or analyze your valuation findings, and how they actually make and implement their final decisions.Â Knowing a prospectâ€™s style helps you know how to sell your business evaluation services to them, and to be better able to work with existing clients.
Looking Ahead to the Next Stage of Life
Personal transition planning is essential for owners who have no interest in a post-ownership life consisting of sitting on the porch in a rocking chair or playing golf 24/7.Â Running a business is intellectually stimulating, which is one reason owners need to create a game plan for keeping their minds active after leaving their companies.Â Owners also need to determine if they want to spend their post-ownership lives working part-time, starting a new business, doing volunteer work, or any combination of these.
Owners who engage in personal transition planning are able to answer the crucial question of, â€śWhatâ€™s next?â€ť Â Creating a strategic lifestyle game plan allows them to know where they want to live, how they are going to replace their social contacts, and how they are going to take care of themselves physically in their post-ownership lives.
They will also deal with the issue of finding new common interests with their spouse; which will minimize the likelihood of a divorce or having each partner go a separate way at this stage in life.Â Finally, owners who have engaged in transition planning will create tactical plans for how they will practically implement each of their lifestyle decisions.
Personal transition planning helps owners become aware of, and effectively deal with, the various fears associated with transitioning out of a business so they can successfully navigate the uncharted waters of leaving their companies.Â Transition planning changes an ownerâ€™s perception of what it will be like to leave the companyâ€”transforming it from â€śan endingâ€ť to â€śa new beginning.â€ť
For all these reasons, now is the time for you to suggest succession planning to your clients and prospects.Â Also, keep in mind that at some point in the future, you too can benefit from transition planning when you are ready to begin thinking about leaving your own business/career and considering what you want to do with the rest of your life.
Jack Beauregard is the Founder and CEO of Successful Transition Planning Institute which trains advisors such as business evaluation professionals to be transition coaches and transition planning consultants which guide baby-boomer business owners and professionals to know whatâ€™s next for their companies and their lives.
Mr. Beauregard can be reached at (617) 267-9727, or by e-mail to firstname.lastname@example.org, or at www.ThePlatinumYears.com.