Understanding the importance of effective and early planning
We said in the introduction to this series that every business owner will have to face an exit strategy at least once in his life. Many owner-managers put in a lifetime of hard work building their business only to throw away some of the rewards by failing to consider properly how they will exit from the business — both financially and as a manager. It’s no surprise then that many former business owners express regret at selling their business because it did not realise their personal or business objectives. The truism of the matter is that ultimately business interest must be transferred, either through choice, or through incapacitation or death.
What are the most common reasons for a business owner to exit?
1. Retirement of the business owner is the most frequently stated reason for ownership transfer. The baby boomer generation (people born in 1946-1964) has been the most affluent and influential population group in history. We predict that baby boomers in Europe will transfer € 10 trillion to later generations. Business owners are emotionally and financially connected with their organizations, so they are very reluctant to seriously envisage to transition ownership before they are “forced” to by age or illness.
2. Pressure from the competition: The second most frequently stated reason for ownership transfer is intensified competition. With the globalisation, convergence of technologies, acceleration of change and ease of communication, competitive pressures have increased; business owners, used to play regionally in a safe and well known environment, cannot cope with the pressure and are forced to exit the business.
3. Death or illness of the business owner, are unpredictable external factors that force the business owner to sell or transfer the business to his heir at an inappropriate time and certainly not at the best conditions.
4. Financial difficulties of the business may also force the business owner to sell with little influence on the outcome of the transaction
5. Readiness of children to take control of the business could cause friction within the family and high inheritance taxes
6. Desire for liquidity on the part of the business owner to move onto something else.
The common theme of these scenarios is that they are generally reactive in nature, and the results of the transaction are very rarely optimal fort the business owner. The objective of this series is to equip the business owner with tools to be proactive, to control the process and optimize the outcome. In the next issue we will review :
If you envisage to transition out of your business in the near future and would want to explore what you should do please do not hesitate to call Jean-Bertrand de Lartigue on +44 1656 766 363 or e- mail him at JB@macint.co.uk