3 Common Objections to Exit Planning

August 9, 2022

For many business owners, exit planning does not usually make the to-do list. Not enough time, retirement being many years away, or some other reason – there are plenty of excuses owners cite as to why they have not addressed exit planning. With most business owners reliant on their company’s value to fund retirement, why does exit planning often get pushed off? Here are a few common objections to exit planning:

1. “I do not have time for it.”

Business owners are very busy. They often wear multiple hats in the business, which is extremely time-consuming. That, coupled with making time for family, usually puts other tasks on the back burner. Of course, planning for an eventual exit takes time and energy, but when executed properly, it can enhance the value of the business while saving the owner time in the long run. Usually, the owner’s retirement plan is reliant upon a future liquidity event surrounding the business. Hence, time spent on exit planning to ensure the business is ready to transition to a buyer is critical to not only the success of the owner’s retirement plan but also in preserving the family’s overall wealth. Certainly, that is something worth making time for!

2. “I have no plans on exiting any time soon.”

Why plan for an exit that is not imminent? That would take focus away from day-to-day business activities and hinder company performance, right? Whether by choice or not, all owners will eventually exit their business. Without a plan in place, the owner’s sudden death could cause irreparable damage to the company’s value. Also, even if the business owner believes their retirement is many years away, it is never too soon to begin the planning process. Waiting to create and implement a plan a few months after the owner decides they are burnt out will almost certainly result in a poorly constructed plan lacking key components. In turn, a potential buyer will discover weaknesses in the business during the due diligence process and use them to push down the purchase price of the company. Carving out ample time to work on the business will result in a solid exit plan and increased transferrable business value.

3. “I already know who I am going to sell to.”

What is the point of exit planning if the owner already knows how they will exit? For example, even if an owner is sure that their child will be buying the business, there is still plenty of planning to be done to prepare for an effective transition. How will the business be valued for this transaction? How will the sale be structured? Will there be an earnout? How long will the owner need to stay in the business after the sale? These questions, among many others, are crucial to address well ahead of a transition, even if the buyer is identified long before the transaction occurs.

There are many reasons a business owner might put off exit planning but making time to craft a carefully thought-out plan will result in increased owner confidence, enhanced transferable business value, and likely an owner that exits the business without regret. Engaging in the exit planning process as early as possible is critical for not only the business owner but also for their family.