Do you run an immortal business? I hope so. If you answered “no,” or even hesitated to be sure of your response, then you don’t think of your business as immortal.
So when do you plan to shut it down?
Most owners react viscerally to that question. They’ve invested too much time and too much sweat to watch their companies become a memory. They care too much about employees and customers to entertain the idea of abandoning them.
For many, the business is a part of them. Shutting it down would be like having a piece of you die.
Ironically, we play mental gymnastics in our heads every day. We think we have an immortal business. We know we aren’t immortal (on this plane of existence, at least.) Yet, I talk to owners every day who want to pretend that either they will run the business forever, or that it will find some magic way to continue without them.
Anyone who works in exit planning knows the standard answers to the question “What is your exit plan?”
- “I intend to look for a buyer in about 5 years.”
- “I still enjoy my business. Talk to me after I get tired of it.”
- “I’ll sell anything for the right price if someone offers it.”
Each of those answers is a version of “I haven’t thought much about it, and I really don’t want to.” I wouldn’t be much of a consultant (or at least I’d be an impoverished one), if I didn’t have some counter arguments ready.
- “I intend to look for a buyer in about 5 years.” That’s fine, but five years is about the minimum time you should allow for any serious tax planning. If you are going to take a subchapter S election, create a new entity, or change your depreciation methods, it will take some time to have the desired effect. Of course, the Internal Revenue Service already has a plan for how they would handle the proceeds, so you could just go with theirs.
- “I still enjoy my business. Talk to me after I get tired of it.” That is clearly too late. Whether you are selling to employees or family, or marketing the company to third parties, the business needs to be running well to survive a transition to new ownership. Once you start losing interest, it gets much tougher.
- “I’ll sell anything for the right price if someone offers it.” Sure but what is the “right” price? Is it based on industry metrics? Is it some multiple that a guy from a vendor told you a competitor sold for? Is it a number you need for retirement that has little to do with market value? If you received an offer tomorrow, how would you know if it was the best offer you might ever see?
The most important thing to remember is this: Planning is only planning. Implementation is a different activity in the management cycle. Just because you have a plan doesn’t mean you will use it today or tomorrow, but it will still be there when you choose to put it into action.
If you own an immortal business, you have an obligation to the folks who depend on it. Part of that is to know how they will be able to continue depending on it when you aren’t there.
If you know a business owner who would benefit from “Awake at 2 o’clock,” please share!