Three Numbers that Could Save Your Company
The secrets to safely executing a succession plan
As contractors and business owners, we’re exposed to a variety of risks that would keep most outsiders awake at night. We have so many training events, policies, and systems to overcome these risks that we tend to get lulled into taking them for granted, often extending a false sense of security.
Our contracting businesses are exposed to potentially huge liabilities, yet, by habit, our management teams and workers intuitively and professionally manage these obstacles every single day.
Think of the safety precautions we endure on a daily basis. While outsiders may only see the lawsuits and high workers’ compensation rates our industry pays, we recognize and manage these minute by minute as part of our day-to-day businesses.
Exiting a business is a decision we all must consider, regardless how insidious this action has become. Every day our doors open, we’re chock full of risk. We take for granted that we will just have a buyer waiting in the wings. Whether the buyer comes from the outside, through management, or from family members, we 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 all industries and communities. We’ve all witnessed successful enterprises led by experienced baby boomers who fumble the ball in the red zone of their careers only to leave a mess for their spouses, families, companies, and communities.
But, what is the main cause of failure?
According to the Small Business Administration, “At any given time, 40 percent of U.S. businesses are facing the issue of transferring ownership. The primary cause for failure is a lack of planning.”
This short article will share three business statistics (70 percent, 55 percent, and 30 percent) 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 than 30 percent of businesses ever sell or transfer. According to Family Firm Institute: 90 percent fail to transfer to the second generation and 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 0-55 percent — around 0 percent if you have a great adviser, not a good adviser, and around 30-55 percent if you have a conventional adviser.
Why am I slamming traditional advisers? Listen to the rest my actual 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 our company advisers, who boasted more than 30 years of combined experience, advised us with cookie-cutter advice, which cost our team millions of dollars in unnecessary taxes.
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. We were not specialists in exit planning and succession. The good news is, I’m continually learning new strategies to help owners down the exit path that give me renewed energy and passion for an old guy approaching 70.
Each day, my goal is to help owners. I do this by speaking to audiences and publishing as many articles as possible to protect them from making the same costly mistakes we did — even though my team was one of the lucky ones that cashed out and successfully passed the baton to our fourth-generation management team.
Publication date: 2/29/2016