Business Exit Planning.....Perma-five and How to Avoid It
I’ve coined a term for those who are involved in exit planning. The term is perma-five. Perma-five is when someone knows they want to leave their business, but at the same time, they also know they can’t afford to leave their business.
I’ve coined the term perma-five because when you ask this business owner when they want to leave their business they will say five years from now. The reason five years is chosen is because the owner knows they can’t leave their business now. This owner thinks that whatever it is that needs to be done with the business can be fixed over the next five years.
The problem with this thought process is the owner often has no idea what they need to do with their business that would allow them to leave. Should they concentrate on asset diversification, value building within the company, building a competent management team or a combination of all the above?
There is a reason that very few businesses are ever sold or successfully moved to the next generation of mangers. This reason is the owner hasn’t taken the time to put the business in a position that allows them to transfer ownership in a manner where a successor generation would actually want to own the business.
Those involved in business exit planning, whether they are advisors or business owners often don’t understand what it takes to leave your business. The next owner really isn’t interested in the knowledge or abilities of the present owner who wants to sell.
They are interested in getting a business that can systematically produce cash flows. It’s these cash flows that are predictable that will give your business it’s value.
If the business owner has a main asset that is supposed to get them to exit their business and that asset is the business; both advisors and business owners need to find ways of creating an entity that has predictable and regular cash flows. Without this the business owner will stay in perma-five and never be able to leave their business.
What are your thoughts on perma-five? Do you think your business or your Client’s business is ready for transfer?
We have a Stage 3 exit planning report that will help you decide what actions you can take before you sell your business. We find this complementary report is a useful tool as you think about options you might have for selling your business.
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