Just because you run a successful business doesn’t necessarily mean that you will exit from it successfully. Planning can increase the odds that you will transfer your business on terms you’re comfortable with. Yet very few business owners engage in proactive exit planning, failing to establish arrangements for a thoughtful transfer of ownership that protects their interests and the interests of other stakeholders including employees, vendors, and valued clients. As a psychologist who works with late career individuals, here are six obstacles I frequently see that make it harder for business owners to plan for their exit.
Inertia
Exiting from your business takes time and energy. Your advisors will make things as efficient as possible, but you will still need to devote considerable resources to the process. It’s not surprising that a busy owner would prefer to focus on running their business rather than adding another item to their agenda. Particularly if all is well it’s easy to say, “I’ll deal with exit planning when the time comes.” Allowing yourself and the business to coast along can be tempting, but you run the risk of not being ready when a good exit opportunity comes along. Related to inertia is the fear of making a mistake. Some owners worry that they will regret selling, so they opt not to prepare for their exit in any substantive way.
Resistance to change
Many business owners attribute their success to sticking with a winning formula. They’re not interested in making modifications that could make the business easier or more profitable to sell, nor are they comfortable knowing that a buyer might make big changes to their company, and thus they avoid exit planning. Others are wary of how their lives might change once they do exit. Will their scope of authority diminish during the buyout period? Will others still treat them with respect? As an owner, you need to consider how your roles might change (in your family, company, and community) once you leave work. How will it feel to relinquish some of those roles, and what new ones might you take on?
Biased thinking
If human beings were 100% rational, I’d be out of business. There are lots of ways that we can be our own worst enemy and shoot ourselves in the foot. Let me point out two very common human biases that can impact our planning for the future.
Confirmation bias is our tendency to look for evidence that supports our beliefs, while discounting or ignoring evidence to the contrary. Think about how this might trip you up if you’re exiting your business. For example, when it comes to assessing the worth of your business, this bias might lead you to reject an objective valuation. If you’re considering appointing a successor, this bias could cloud your judgement regarding the ability of key staff or family members to take the helm.
Another pothole to watch out for is the availability bias. That’s the tendency to make judgments about the likelihood of something based on how readily and vividly examples come to mind. Let’s imagine that in the past month, you ran into two friends who both said they were unhappy after selling their companies to private equity firms. Do you think you would be fully objective if your advisor raised the same idea in your next meeting?
Loss of identity
The thought of no longer working may sound appealing, but for many people it’s extremely unsettling because so much of who they are is wrapped up in their job. Reverend William Byron wrote, “if you are what you do, when you don’t, you aren’t.” Our personal identity can be threatened by the loss of our work role, particularly if we have not established and developed other aspects of ourselves outside of work. It’s analogous to diversification in financial matters. You’re better able to handle a downturn in the market if your portfolio is diversified. Similarly, you’ll be better positioned to deal with the loss of your work identity if you can tap into other sides of yourself. Recognizing your identity (beyond work) may seem daunting in the abstract, but I’ve found that most people can make progress if they spend some time looking for patterns in their historical experiences and relationships.
Your personal history
Speaking of history, our early family experiences can shape our assumptions and expectations about exiting work. For example, some people find it hard to envision stopping because they never had a role model of life after work; their parents worked until they got sick. Others saw friends or relatives who fared poorly in retirement, and they worry that the same fate will befall them. I hear from business owners all the time who attribute their parent’s death to retirement. They insist that they themselves have no intention to stop working, proclaiming “they’ll have to carry me out on a stretcher.” I admire their fortitude, but their decision to remain at work indefinitely may not be optimal for the company nor is it objective. Ask yourself, are you playing these historical tapes internally? If so, is it really in your best interest and that of your business?
Uncertainty about the future
Exit planning involves grappling with unknowns, decisions, and choices. What is the best option for transferring ownership? What will happen to your company when you’re no longer there? What will your life be like after the sale? How will you structure your time? These are huge questions, and without a crystal ball the uncertainties can feel overwhelming. Your advisors can be of great help, but don’t overlook the lessons you’ve learned from past transitions. Think about past inflection points in your life when you faced major uncertainty. How did you handle those situations? Did you learn something about making decisions in the face of the unknown? Can you apply that wisdom to your current circumstances?
Eventually you will exit
If you’re a business owner, in the future you won’t be. It’s just that simple. There is no escaping the reality that eventually you will exit from your business. If you wait to plan until it feels perfectly right, you might be waiting a long time. Don’t expect that this process will be without some misgivings, ambivalence, and uncertainty. Don’t allow yourself to be paralyzed by those psychological obstacles, and don’t feel as if you can’t talk about them. A trusted exit advisor can guide and support you as you navigate the emotional side of leaving your business.
Larry Gard, Ph.D. is a psychologist and author of the book “Done with Work: A dozen perspectives on the decision to retire”. He provides pre-retirement coaching to late career professionals and business owners. For more information, please visit www.donewithwork.org