By Sarah Harstad, Ph.D., Researcher
Why should business owners start planning so early?
The Center for Rural Policy and Development’s recent report on business ownership succession showed that 81% of business owners are not prepared for succession or exit when the opportunity comes up or when they decide to go through with it. On the list of reasons a person might not begin the process of transferring their business to a new owner or new leadership early enough has to be the fact that it feels like it signals an end or a conclusion that we’re not interested in facing.
We know that wisdom and excellence can take decades to build, and it may feel like our mid-50s are still building years for our businesses, while our 60s and 70s could be our best leadership years yet. Succession and exit planning can point us to the inevitable reality of our own life span, health concerns, or identity concerns. Who am I if I am not a business owner or a CEO? What am I if I am not working?
Thinking about leadership succession and exiting a business may make us feel like we are at an age or stage in life where we can’t handle the tasks and responsibilities of the position. Could our mid-50s really be the time when that is true? Are we at an age or stage where we’re in decline or retreat?
Not at all! While these are valid concerns, they are also wildly misplaced when it comes to the purpose and content of succession and exit planning. The very reason we need to take on our succession and exit planning now is that we are so very capable of this difficult task at this point in life. Exit and succession planning as well as preparing are the pinnacle of our leading and ownership journey.
We should start succession and exit planning so early in order to provide the best conclusion and legacy possible, and it’s especially important for business owners in Greater Minnesota, where a large number of owners will be retiring in the next few years or at least thinking about it, and the resources needed for planning aren’t as available as they may be in the state’s urban areas. And because most business owners have 80% to 90% of their wealth locked up in their business, certified exit planners (CEPA) advise starting to plan sooner rather than later. Getting a valuation of your business so you understand your business’s value realistically is a good place to start. You can then partner this baseline information with your own personal reflection on your own readiness and your business’s readiness to transition into succession or exit.
Reflection can be difficult to walk through alone, though, so ask the right questions and hold yourself to the time it takes to do the work. This is where a consultant or coach can truly provide value. An outside expert can hold you accountable to the reflection, help you understand the valuation, and work with you to build a strategy.
This is where the timing becomes so important. It is very possible that you might decide to build more value into the company. Through the process, you might notice ways that you can improve the chances of caring for your employees, customers, vendors, neighbors, community, and all the other important people in your life when you have more time to engage in a plan. By starting in your 50s, you have the insight, ability, and impact to make those moves.
Starting now also gives you time to prepare your personal finances, before you want to truly exit the business. Preparing your personal future is just as important as preparing the financial picture of your business operations.
How many years have you been committed to responsibilities of ownership, driving to meet family needs or community impact? The succession planning portion of exit planning is when you take the opportunity to work through your future. A coach who is business-savvy is an ideal partner to work with you on this transition plan. A cohort of other owners in exit and succession planning who are addressing similar concerns in the next few years can also provide just the space you need to build your personal vision of the future.
Succession and exit planning can unlock the potential for your legacy to expand and impact all the things you care about. What an exciting time for you and your business!
Dr. Sarah Harstad holds an MBA from Minnesota State University, Mankato, and is a recent graduate of Indiana Wesleyan University, where she received her Ph.D. in organizational leadership. She owns 112 Advising, a coaching and consulting business based in rural Minnesota and is a certified exit planning advisor (CEPA).