Why Business Owners Should Fear Exit Planning

Legal matters, business strategy, and life perspectives from the mind of a non-attorney.

After a very brief hiatus, Breakfast at Epiphany’s is back – and better than ever.

Due – in part – to a recent uptick in demand for our services, yours truly got a sweet new title: Exit Planning Advisor.

It’s a definite blessing, and certainly part of the vision I had for my future with the firm when I joined a little over a year ago.

For the prospective client, very little changes. Kevin Eismann (Attorney/MBA/CEPA) is still the lead consultant. His unique blend of education, professional experience, and business acumen is the reason Epiphany Law is the premier source of Exit Planning in the Fox Valley.

The new guy simply provides an extra set of eyes and ears to sit in on your conversations. I also bring an interesting new perspective to the table: As a ‘millennial’, I’m naturally inclined to process information through the eyes of a business owner’s potential buyers/successors.

Compare that to most respected business consultants who – rightfully so – are well-seasoned, experienced, and trained to see the world exactly how business owners do. I’m inclined to see it with a twist. This allows me to chime in from time to time playing “devil’s advocate”. That perspective is particularly valuable to business owners selling or transitioning to a younger generation.

The Emotion of Fear

I talk a lot about emotions in this blog. I don’t know. Maybe I’m an emotional guy.

I asked my fiancé, Morgan, what she thought: “Eh… Yeah, kind of.”

Thanks babe. Appreciate the love.

She did go on to explain that with big decisions I tend to spend a lot of time analyzing and thinking things through, but when it comes down to it I will go with my gut. That made me feel marginally better.

It’s interesting that she would bring up decision making, though. Today’s post is all about how one emotion – fear – plays a huge role in influencing strategy and decision making.

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Fear plays an interesting role in our society. Sometimes it manifests itself in response to a legitimate threat to our wellbeing. This emotion was extremely valuable in more primitive times – say, thousands of years ago when day by day survival was anything but a given.

Fast forward to present day, and many of us are blessed to be able to navigate through an entire lifetime with less than a single handful of true life-threatening experiences.

From a purely logical standpoint, one may try to assume that fear plays a lesser role in today’s society. After all, it’s original adaptation and purpose – survival – is no longer the prevailing purpose of our lives.

People much smarter than myself indicate that assumption is far from the truth. According to Ahmad Hariri, a professor of psychology and neuroscience at Duke University, “Change has occurred so rapidly for our species that now we are equipped with brains that are super sensitive to threat but also super capable of planning, thinking, forecasting and looking ahead… So we essentially drive ourselves nuts worrying about things because we have too much time and don’t have many real threats on our survival, so fear gets expressed in these really strange, maladaptive ways.”

In other words, the fear-center of our brain is still very-much alive. But it doesn’t just sit around patiently waiting for the once-in-a-blue-moon instance where it truly needs to be used. Instead, it continues to be used by our brains on the daily.

In the absence of true threat, our brain has figured out how to conjure up illusions of threats to our existence.

Dr. Karl Albrecht concludes that ALL of these illusions stem from one of 5 core fears common among humans.

  1. Extinction – The fear of literal death.
  2. Mutilation – The fear of damage to one’s body.
  3. Loss of Autonomy – The fear of immobilization, imprisonment, or other loss of control.
  4. Separation – The fear of rejection.
  5. Ego-death – The fear of public humiliation or self-disapproval.

Why Business Owners DO Fear Exit Planning

Without question, there is underlying fear (some real, some self-conjured) at play for business owners who consider Exit Planning as a resource. I want to expose those fears for what they truly are, and discuss whether they are illusions of the mind or justified concerns.

1) Fear of getting old.

Through numerous conversations with business owners and years of research into the field of Exit Planning, it’s apparent to us that the departure from business ownership signifies “the end” of youth for many. The words “I sold my business” literally equate to “I’m old”. Ouch.

But old age isn’t one of the 5 core fears common among humans.

So what exactly is the underlying fear? At first blush, one may assume it to be death itself. People who fear old age are really fearing death, right?

Maybe.

We have to be careful about making sweeping generalizations in this arena, as each individual is different. However, in our experience, it is actually more common that the classic “old age” fear is more closely associated with an Ego Death fear. In this case, being old equates to a dramatic loss of self-worth.

“Logic”:

Exit Planning = Old Age.

Old Age = I’m worthless (Ego-Death).

I fear Ego-Death; Therefore, I fear Exit Planning.

Conclusion:

One of my favorite quotes is from Abraham Lincoln, “It’s not the years in your life that count. It’s the life in your years.” Every day is a blessing, and making the most of it is simply a matter of choice. Those who choose to live with that perspective are able to find meaning in spite of a number.

Bottom line: Aging is a state of mind. If you think you’re old, you are. If you think you’re young, you are. Retirement has nothing to do with it.

 

2) Fear of being bored.

Make no mistake, simple “boredom” is relatively easy to cure for people who value themselves and have passion for life outside of work. We live in an era of limitless activities and hobbies for people of all walks of life. One simply has to open their eyes and give it the “ole college try”.

In our experience, those worried about “boredom” are covering up a much deeper-seeded fear. Once again, it’s Ego Death. This time, self-deprecation stems from a feeling that their value as a human being is intrinsically attached to the title on their LinkedIn profile.

If you look in the job description of most business owners, you will find the word “workaholic” as a prerequisite. Decades of painstakingly building a business hard-wires the need to be “productive” in one’s DNA. However, most will tell you that mowing the lawn and working around the house does provide the same level of satisfaction as spending a full day at the office.

But why? Work is work, isn’t it?

Many business owners describe their passion for the job as, “It’s all on me.” The level of responsibility is unmatched: Quite literally, the entire livelihoods of employees, families, and – in some cases – entire communities depend on you. Over the years, the relationship between business and business owner becomes almost symbiotic – that is, they need each other to carry on.

It’s the feeling of being needed that drives the productive nature of many business owners. While the relationship is alive, few things provide more satisfaction. When it’s over, many find themselves asking, “What’s the point?”

“Logic”:

Exit Planning = I am not a Business Owner.

I am not a Business Owner = I’m no longer needed (Ego-Death).

I fear Ego-Death; Therefore, I fear Exit Planning.

Conclusion:

Business ownership creates an illusion of high self-esteem. It isn’t until the former is abruptly ripped away that the problem is exposed.

For business owners who actually want to deal with the issue, there is truly no better resource than Exit Planning. The best Exit Planning consultants take emotional challenges of business departure very seriously, making it a staple in their process. That is, they dedicate several hours to the conversation – forcing clients to truly consider the impact that retirement will have.

 

3) Fear of consultants.

Business owners of the D / C personality type (DiSC Personality Profiles) are particularly prone to this, but for different reasons:

C-style personalities take enormous pride in their expertise and show tendencies to fear criticism – no matter how constructive it may come.

D-style personalities take enormous pride in their independence and show tendencies to fear giving up control of any kind.

Type-D “Logic”:

Exit Planning = Hiring a Consultant.

Hiring a Consultant = Giving up Control.

Giving up Control = Ego-Death.

I fear Ego-Death; Therefore, I fear Exit Planning.

Type-C “Logic”:

Exit Planning = Hiring a Consultant.

Hiring a Consultant = Potential Criticism.

Potential Criticism = Ego-Death.

I fear Ego-Death; Therefore, I fear Exit Planning.

Conclusion:

If there is one message that we consistently drive home with clients, it’s this: “It’s your business, not ours. You don’t have to listen to our advice. We are simply here to provide recommendations based on our years of experience working with owners that were once in your shoes.”

If you avoid hiring someone because they bring nothing to the table – you are a wise.

If you avoid hiring someone because they know more than you – you are a fool.

Why Business Owners SHOULD Fear Exit Planning

Business owners should fear not what Exit Planning is, but the root cause of its existence as a practice.

Consider for a moment the first time you heard of “Exit Planning”. With a great degree of confidence, I’d venture to guess that most have learned about it within the last 5 years. I’d be shocked if you knew about it prior to the Great Recession.

Why is that? Why does it feel like this is such a new and growing idea?

Did we just begin buying and selling closely held businesses in the past decade?

Of course not. In a free economy, businesses transactions have taken place from the time the first one closed its doors.

The real reason is that selling a business the way you want, at the time you want, and for the price you want is getting harder and harder with each passing day.

To be fair, selling a business has never been “simple”. On a scale of complexity, it’s always been closer to “figuring out your wife’s mood” than “figuring out your dog’s mood”.

These days, the scale has been flipped into overdrive. Vastly more complex, we are now talking about a scale that includes “figuring out your pregnant wife’s mood”.

One needs only to have a rudimentary understanding of supply and demand economics to understand what I mean.

Baby Boomers own 67% of private businesses in the United States. Let me repeat: two out of every three small businesses are owned by individuals aged 54 to 72.

Two out of every three private businesses in this country are owned by someone that is VERY NEAR normal retirement age.

That, my friends, has the makings of a mass exodus.

What happens when the market becomes flooded with businesses trying to sell? Is that an attractive situation for business owners who need to net big money in order to retire?

Nope. When supply abruptly exceeds demand – we call that a buyer’s market. The proportionately few individuals that are looking to scoop up small businesses will become extremely picky. Businesses who don’t make the cut will sell for pennies on the dollar – if they sell at all.

Roughly 10 – 15 years ago, very smart people saw this trend coming. In response, they created a practice called Exit Planning – something to teach business owners how to prepare for the sale of their business. I guess it took a while for word to spread.

I have news for you: the floodgates have begun to open. Brokerage firms are reporting that business sales are at all-time highs.

The sliver of good news, for business owners selling soon: Your potential buyers have extremely easy access to capital. For the time being, demand for private businesses is keeping up with the supply on the market. That will not always be the case, particularly as interest rates continue to rise.

 

Conclusion

The knee-jerk reaction of many business owners is to fear Exit Planning for what they associate it with: A threat to the Ego.

By digging a little deeper, it’s easy to see that Exit Planning itself is in fact acting as the scapegoat for pre-existing character flaws that are likely to be exposed regardless.

Business owners SHOULD fear Exit Planning because of what its existence represents:

Businesses are becoming HARDER TO SELL. Business owners who don’t capitalize on a business sale lose control of their future.

Now THAT is a legitimate fear.

 

Want to take back control? PLAN. FOR. YOUR. EXIT. 

 

Give us a call or shoot me an email if you have more specific questions!

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