Do You Plan Like Your Future Depends On It?

You can feel, see, and hear the changes in the season. The vibrant shift from spring to summer is in full swing, sparking thoughts about the many transitions we all experience. My blogs usually delve into business, but today, let's get personal.

Transitions Got Me Thinking

I've been reflecting on transitions lately. My business is going through some as I reassess who I best work with and how. Several of my clients are facing exciting, stressful, and life-changing decisions. At a recent Family & Closely Held Businesses Summit, I learned that many business owners are unprepared to transition from their business. This last one hit home, as one of my client’s father passed suddenly, leaving a wonderful company, but very little personal wealth.

Out of all my musings, I realized there are three truths we all know but may not think enough about.

1. We Can’t Predict Every Transition: But the big ones can be anticipated. Why don’t we plan for those we can foresee?

2. Life and Money Happen, With or Without A Plan: Money influences our lives whether we actively manage it or accept what unfolds. Our childhood family structure and financial situation shape our first thoughts about money, but ultimately, our financial future is determined by our adult decisions. Unfortunately, Credit Karma recently reported that 27% of adults over 59 have zero retirement savings.

3. Planning is Very Important: Achieving a goal requires vision and strategy, values to live by, and the capability to execute. Without a plan, we react instead of proactively managing our lives and businesses.

Transition Planning for a Family Business is Exponentially Harder

Family or closely-held businesses face unique planning challenges. Aligning strategy, values, and capability is often harder due to:

1. Family Dynamics: Multiple family members interested in leadership roles can make transitions tricky.

2. Personal Business Planning: Transitioning a business is deeply personal. For founders, it means giving up something they built or passing on a legacy.

3. Limited Resources: Public companies have more senior-level expertise and resources. Strategic planning and measuring results are embedded in their operations.

4. Business Value and Retirement: Owners often expect their business value to support their retirement lifestyle. Without timely planning, they face financial risks like undervaluation and unoptimized sales.

Start Planning Early: Business owners aged 35-55 should recognize the importance of early planning. Beginning the process 5-10 years before an intended transition allows for maximizing business value and ensuring a smooth transition.

Research Highlights the Lack of Planning

According to the Exit Planning Institute, 57% of owners who sold businesses valued at $2-5 million did no exit planning. The EPI’s 2023 National State of Owner Readiness Report noted:

• 51% of the current American business market is owned by Baby Boomers, set to transition over the next zero to ten years.

• Only 20 to 30% of businesses that go to market actually sell, leaving up to 80% without solid options to harvest their wealth.

The Value of an Engaged CFO

I have a hypothesis. If many small businesses that sold lacked an exit plan, and planning is a finance function, then many companies operate without a CFO.

In other blogs, I have discussed the CFO’s primary value is to identify opportunities and mitigate risks. When future planning starts too late, owners become exposed to unique risks:

·         Their expected value is well below market, even under favorable conditions.

·         Not enough time or focus on business optimization to maximize sale value.

·         Transition is accelerated by death, divorce, disease, or other life event.

·         The business can sell well below expectations, or not at all, due to an industry downturn. 

Your CFO should be on your leadership team and actively engaged in your business.  They should also play a "quarterback" role for your entire financial management team, including accountants on staff and your banker, CPA, and tax expert. Ideally, they also communicate with the owner’s personal financial advisor to ensure a consistent future plan.

Take Action Now

If you are thinking about the value of your business today and your inevitable transition, start your business optimization and planning now! Here are three key strategies to secure your financial future.

1. Optimize Current Business Performance, especially 3-5 years before an expected sale. Leverage technology, data analytics, and process mapping to gain valuable insights and streamline operations. Early adoption of these tools can make your company more attractive to potential buyers. Engage a fractional CFO and build a strong leadership team that can run the business without you.

2. Actively Plan Your Transition Well In Advance, whether selling outside or within the family. Leverage technology, and invest in your personal, and personnel, development. Conduct a business valuation to establish your company’s current value.

3. Create Personal Retirement Wealth Outside the Business to diversify your investments and avoid relying solely on the business for your retirement.

If you are quarterbacking your finance team, consider the risks you are taking and the value a financial expert offers.

Contact me today for a complimentary consultation and discover how a fractional CFO can transform your business and personal financial landscape. Your future self will thank you.