Exit Planning: Why do Business Owners Avoid it?

Science has proved it to be an urban myth, but it was long believed that ostriches buried their heads in the ground at the sight of approaching danger.

Thus, the phrase “You have your head in the sand”, was born. It means: “To refuse to acknowledge or deal with problems, danger, or difficulty in the hopes that they will resolve themselves on their own.”

Business owners are notorious for “burying their heads in the sand” as they near the end of their runway. But why?

When so much can be gained by sucking it up and planning for an exit, why do business owners avoid it?

In no particular order, here are several reasons:

  1. Afraid of getting old. Exiting the business represents “the end” of youth.
  2. Feel trapped. Used to a high level of income that accompanies business ownership. Afraid that they will have to take a “pay cut” in the last chapter of their lives. The tendency is to stay in the business, pulling off a heavy salary, as long as possible.
  3. Don’t know what to do next. Don’t have a purpose in life after work. Business is their identity.
  4. Afraid of being bored.
  5. Don’t want anyone to know they are planning to exit their business. They have an irrational fear that employees, customers, suppliers will leave if they find out a transition is happening. In reality, these people are already thinking about the business owner’s eventual retirement, and they would feel more comfortable if they knew the strategy for moving forward after you are gone.
  6. Have priorities that feel way more urgent than exit planning. “I don’t even have enough time in the day to run my business, how am I supposed to have time to plan for an exit”. This is the classic “saving face” excuse that many business owners are willing to voice when they don’t want to discuss their soft/emotional apprehension toward leaving the business.
  7. Misinformed and confused about what to do. In a world where most professional services have stood as pillars of industry for hundreds of years, Exit Planning is still in its infancy as a practice. It’s an incredibly confusing and very time-consuming process. And different advisors preach different things. Unfortunately, many advisors right now are taking a micro-view of “Exit Planning” that fits their personal expertise, because there is money to be made if they can play a role in an owner’s exit. For example, a financial advisor may map out a business owner’s projected retirement assets/expenses + reallocate their investment portfolio and call it “Exit Planning”. This is not Exit Planning. It is a very small piece of the much larger Exit Planning process.
  8. Genuinely don’t want to exit. They still have the drive for it. They still thoroughly enjoy what they do. Can’t even comprehend leaving in the next 10 years. This doesn’t mean they shouldn’t familiarize themselves with the Exit Planning process. There are certain concepts – particularly in the area of risk management – that all business owners should implement correctly many years before they feel “ready”. Taking some time to understand the process – to understand what buyers are looking for – can afford business owners a strategic advantage.
  9. Control issues. Some business owners are simply attached to the operations. Can’t let go, even if there are people in place, ready to assume more responsibility. If they aren’t in place, it usually is a simple process to cross-train people to assume more responsibility or hire an additional employee to assume some of the burden.
  10. Don’t understand all the options available to them. Many business owners have very misguided beliefs about the market for their business. A common mistake is to ignore a sale to employees because they “don’t have any money”. In many cases, if time is on the owner’s side, there are strategic ways of helping employees build capital.
  11. Heir-apparent (successor) is not working out. The most common situation is that the owner’s “heir-apparent” child does not possess all the qualities that the owner would like to see. In some cases, the concerns are valid. In other cases, the owner is being overly-critical. Regardless, owners whose heir-apparent isn’t “just so” undergo a great deal of emotional turmoil as they grapple with “what to do”.
  12. Can’t figure out how to be “fair” to everyone, including: children, spouses, employees, etc.

 

Fear and other emotional distresses play huge roles in a business owner’s decisions near the end of their runway. It’s common for the owner to vocalize a “rational” reason (like #6) to others, while concealing the true reason. The sad and unfortunate truth is that many business owners never work up the courage to face the true source of their distress. They simply avoid the situation entirely until they are forced from the business by some health-related factor. Businesses rarely survive that situation.

Question for the Crowd: Do you have personal experience dealing with an owner who stuck their head in the sand near the end of their runway? We would love to hear your story! Tell us what your role was (employee, child, spouse, etc.) and what you think the owner was avoiding. Is there anything you could have done to help the situation?  Please comment below or send an email to [email protected] (Re: Head in the sand) and we will post your comments anonymously.

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