Business Owner Burnout Highlights Importance of Exit Strategies

The COVID-19 pandemic has taken a toll on business owners, causing many burned out entrepreneurs to ponder an early retirement...

Business Owner Burnout Highlights Importance of Exit Strategies

Business Owner Burnout Highlights Importance of Exit Strategies

<strong>The COVID-19 pandemic has taken a toll on business owners, causing many burned out entrepreneurs to ponder an early retirement.</strong>..

Author: Fred D. Zemel|May 20, 2021

The COVID-19 pandemic has taken a toll on business owners, causing many burned out entrepreneurs to ponder an early retirement. If you are seriously thinking about retiring or selling your business in the near term, it is imperative to have an exit strategy in place.  

Survey Reveals Business Owners Are Pondering Early Retirement

Many large business owners have escalated their retirement plans in the wake of the pandemic, according to the latest Business Owners’ Outlook survey by Wilmington Trust and M&T Bank. It found that many business owners are experiencing burnout and exhaustion, resulting in a high percentage moving to retire earlier or looking to sell their companies.

The survey data indicates that the number of owners who say they plan to retire sooner than expected has doubled since August 2020. Among owners of larger businesses, the survey revealed a 110% increase since last August; meanwhile, the number of owners of smaller businesses who plan to retire sooner has jumped 100%. In that same time period, the percentage of owners of larger businesses who say the pandemic has caused them to sell their business sooner than expected has increased 31%.

Interestingly, the survey found that business owners are also less optimistic that their wealth will be well-managed in their absence. In March 2020, 50% of all entrepreneurs were very confident that their personal and business assets would be well managed in their absence.  That figure dropped to 34% in the latest survey.

Importance of Exit Planning for Business Owners

While it may be possible to accelerate the timeframe for selling your business, it is still imperative to have a plan in place. Without careful planning, you could risk losing everything you have worked so hard to build.

When developing an exit strategy, there are numerous issues to consider. Below are a few that should be at the top of your list:

  • Evaluating your finances: One of the most important steps is to determine the value of your business. Equally important is to determine how much money you will need to gain from the sale of the business to be financially secure and how you want that money to be paid, i.e. lump sum, installments, etc.
  • Considering your options: There are several different types of exit strategies. The most common is to sell the business, whether it be to a family member, management/staff, or a third party. Other options include merging with another business, conducting an IPO, and closing/liquidating the business. It is important to carefully evaluate what strategy is your best option, as the decision may be influenced by a wide range of factors, including the nature of your business, the economic climate, and your timeframe for exiting the business.
  • Consulting with your advisors: Many business owners fail to appreciate all of the issues that must be addressed in an exit/succession plan, including the legal and tax implications. It is crucial to involve all of your key business advisors in the process, including your accountant, attorney, investment advisers, tax professionals, and insurance agents.
  • Compensating your investors: As you develop your strategy, you will need to discuss your plans with your investors and stakeholders. Among other issues, the plan should address how and when investors will be repaid.
  • Training your successor: Training a successor to take over your duties should start as soon as possible. The most effective succession plans appoint, train, and install successor(s) before they are needed. Allowing the new leader to take over responsibilities over time and while current executives are still available to provide guidance can help ensure a smooth transition. Of course, it can be difficult for current leaders to let go of the reigns and allow the successor to learn from his or her mistakes.
  • Informing your employees/customers: If you plan to exit the business sooner rather than later, it can be beneficial to keep both employees and clients in the loop. Informing key employees, clients, and business partners about your plans helps preserve good will and can make for a smoother transition to new management/ownership.

If you are not yet ready to walk away from your business, you should still have an exit strategy in place and a fairly good idea of how much your company is worth. Having a business valuation and exit plan in place helps ensure that you will be prepared to act when the time is right.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Fred Zemel, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.

Please Share This article

About Author Fred D. Zemel

Fred D. Zemel

Fred Zemel has over twenty years of substantial, national experience representing clients in commercial transactions, and counseling clients regarding their business interests. Due to his broad-based, comprehensive background, clients routinely rely on Mr. Zemel’s guidance in structuring, negotiating and closing deals.

Contact Practice Representative

* The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.