Small business owners typically eat, sleep, and breathe their business. It is their passion, and it is consuming. Thinking about the day that will come when they will exit the business in some way is generally back of mind, and they don’t consider planning for that process. While there are many facets to the exit planning process, this article will focus on the personal readiness of the owner to exit, including planning what their lives will look like after they are no longer involved or fully involved in managing the business.
First, a business owner who has dedicated their lives to building something of value must be emotionally ready to let go. Are they, in fact, ready? They are relinquishing control of their life’s work. Because entrepreneurs spend their lives managing the highs and lows of everyday business, they are left with an emotional void, stemming from a lack of purpose or just, simply, things to do. Planning the logistics of the exit will create, for the owner, a picture of what their new life will look like. It will help them to mentally prepare for this picture.
Second, they must have a personal financial plan for life after exit. This will be based on their current personal assets, what lump sum they receive for the business when they exit, and any residual income they may earn from the business. Based on these factors, the financial plan must address:
The plan will involve determining how to invest their assets, what insurance they may need such as long-term care and life insurance, and how they will receive income distributions from various sources.
Third, they will need to consider how they will spend their time during retirement. As mentioned before, they will be left with a void in their lives. Their time has been consumed for years by managing the business. They need to consider what they will do on a day-to-day basis. For some, this may not be a problem. They may have a hobby or travels that they have always wanted to pursue, or want to spend more time with family. But not every business owner has considered how they will spend their time. Completing their business exit and suddenly having time on their hands that they don’t know what to do with could take an emotional toll. This is why planning “life after exit” is a critical part of the overall exit planning process.
Many articles address the nuts and bolts of exit planning decisions and strategies - but the personal planning aspect is also a critical component of a successful exit that should be carefully considered.