As business owners we are constantly exposed to a variety of risks. Risks that would keep an outsider awake most nights. We have training, policies and systems to overcome— so many risks that we tend to get lulled into taking them for granted and perhaps gain a false sense of security.
Our companies are exposed to potentially huge liabilities, yet a part of our company culture is to professionally manage these obstacles that are put in the forefront of all our management and workers every single day. Think of safety. Outsiders just see the lawsuits and high worker compensation rates our industry pays. We recognize and manage this risk every day as part of our day to day business.
When exiting, our risks are more prevalent than ever but insidious. We take for granted that we will just have a buyer waiting in the wings. Whether the buyer comes from the outside, management or family member, we then need to be certain that we can harvest enough sales proceeds to meet our post exit financial goals.
The turn of the last decade has brought us many financial hardships and company closings within our industry and communities. Even successful enterprises experienced baby boomer owners fumbling the ball in the red zone of their career only to leave a mess for their spouses, family, company and community.
This short article will share three business statistics you need to memorize to understand your risk if you ever intend to cash out.
Seventy percent of your wealth is trapped inside your illiquid business. Because this number is so large, how do you intend to beat these odds, cash out, retire and, not run out of money or alter your post exit lifestyle?
Fewer that 30 percent of businesses ever sell or transfer. According to Family Firm Institute:
- Seventy percent fail to transfer to the second generation.
- Ninety percent fail to transfer to the third generation.
These are onerous statistics that you can’t afford to ignore for benefit of your family, management and employees.
If you are one of the lucky ones to cash out … then you have the welcoming hands of Uncle Sam waiting for his “fair share” of your harvest. His portion can amount to 0 to over 55 percent:
- Around zero percent if you have a great advisor not a good adviser.
- Around 30 to over 55 percent if you have a conventional adviser.
Why am a slamming traditional advisers? Listen to the rest of my story.
After retiring I went back to school for two years to be certified in my new career as an exit planner. It was then that I discovered that our company advisers for whom we shared over 30 years of experiences together advised us with “cookie cutter” advice. This cookie cutter advice cost our team millions of dollars in unnecessary taxes. If I knew then what I know now ...
Believe me, I found out the hard way that you don’t know what you don’t know.
But I was just one of three owners of a 200 employee company then … and not a specialist in exit planning and succession. The good news is that I am continually learning new strategies to help owners down the exit path.