69% of Business Owners Planning Exit, but May Not be Prepared

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Despite forecasts to the contrary from a decade ago, many baby boomer business owners have held onto their businesses far longer than expected. Nevertheless, a 2014 Business Enterprise Institute (BEI) study found that more baby boomers are finally planning their sell their businesses and retire. The BEI found that that 69% of business owners have plans to exit their business within the next 10 years.

Although this certainly provides some relief for young entrepreneurs looking to acquire businesses, those boomers planning to leave appear to be ill prepared to do so. A recent Forbes article reports that the Exit Planning Institute (EPI) has troubling news, both for those who might hope to acquire a business and those looking to sell: most soon-to-retire owners have no exit strategy.

EPI’s survey also discovered that many of the business owners had 80-90% of their assets tied up in the business. With no exit plan in place and with most of their assets integrated into the business, most business owners who wish to sell will find it difficult to attain the type of exit and retirement they have planned.

Unfortunately, businesses that fail to properly develop an exit strategy, which includes disconnecting personal assets from business, are a tough sell to buyers. EPI’s CEO, Christopher Snider, intimated how significant this problem might be: Fewer than a third of businesses that go to market eventually sell.

There are solutions business owners can take to begin the process. Receiving a proper valuation of the business is an important step, particularly given how many business owners have not had their financials audited. Most importantly, however, business owners will find it necessary to acquire limited liability status. This will help separate personal and business assets. While not all businesses may need to obtain this, any business owner hoping to sell can make the process simpler by having fewer legal ties to the company.

Above all, business owners may want to consider professional advice from an accountant or exit advisor before making any changes.