For a majority of business owners, over 80% of their net worth is tied up in their business! In addition, most businesses will never sell.

Strategic planning can allow business owners to drive income, value, and transition on their terms.

 

Authors Anthony Saffer, CFP®,CKA® and Alex Okugawa, CFP®, CEPA®, CKA® 

Full transcript:

Anthony: Hello and welcome to One Degree Advisors where we help families cut through the noise to make confident financial decisions, you know, Alex a lot of business owners say I work hard in my business and I don’t have the time to think about my future or to really have a plan, but here’s the problem for most business owners up to 80% of their net worth is tied up in their business and their financial success isn’t so much about stocks and bonds. So what do we do about that?

Alex: Exactly and I know that’s a common frustration for a lot of business owners they go to see a financial advisor and all they’re talking about is stocks and bonds and the market. It’s like, you know what like I’ve got to be focused on my business. This is really where my financial success comes into play. But let me run by some quick facts.

So 80% of companies under $50 million in Revenue never sell, l only 30% of family businesses survive into the second generation and 75% of business owners are unhappy after they sell their business. Now again, these aren’t just my facts. These stats come from the Exit Planning Institute.

The Exit Planning Institute, so they do a lot of research and education on business owners and exit plans. But these are the facts. These are the things we’re dealing with.

#1 – What Do Successful Business Owners Do? [01:14-01:55]

Anthony: So I guess a follow-up question then would be from a business owner standpoint is so, why plan if I’m not planning to sell my business? And then what do successful business owners do?

Alex: It’s a really good question and it’s hard. Right, I’m not saying that this stuff is easy because it’s definitely, it can be challenging. But the point is you need to start getting intentional and you need to start thinking long term. So one of the things you need to be answering is or asking yourself is, is the business profitable? And I know it sounds like a kind of an easy question off the bat but it’s the truth is the business profitable, because if you don’t have a profitable business who’s going to want to buy your business? How do you take it to the next level either through a third-party sale or even intergenerational? It’s just not going to happen.

#2 – Does my business beat the competition? [01:56-02:20]

The second question you need to ask yourself is “Does my business beat the competition?” Again, is my business a dime a dozen? Right they can go down the street and get the same widget or same whatever for the same cost and there’s no difference.

How do I stand out from the crowd? How do I make myself different? What is my differentiating factor that makes my business unique from everyone else?

#3 – Is my Business Scalable? [02:21-02:48]

The third question you need to ask yourself “Is my business scalable?” I know a lot of people when they talk about scale they think upwards, but I’m also talking about downwards. So you need to be able to think could my business scale if you know sales increase 2x and all of a sudden we need to hire more people. Can I scale my business upward? And conversely, it’s going to lead to the next Point. Can I see all my business downward? Can I shrink operations?

#4 – Can the Business Sustain Storms? [02:50-03:53]

Alex: Can I reduce things at a relatively easy level and again, like I said it leads into my fourth question, which is can the business sustain storms? And this is what we’re seeing right now right through the midst of the Covid crisis. Everything going on for businesses, you know, if you’re a restaurant not a not letting folks come in.

This is a big storm and I think the businesses that were able to survive this storm, they’re battle tested. Right, when they go to sell their business or they’re ready to make a transition this is a badge of honor to say “Hey, listen our business made it through this crisis”. It was tough but we hunkered down we got it through.

It shows a potential buyer how resilient your business is that if they could get through this there’s a lot of things that this business can come through. So again, those are the four questions that a business owner needs to be thinking about for future success.

But here’s the problem only 25% of business owners have a basic financial plan. So if that’s the problem then what’s the solution? We got to think ahead…

Are You Prepared For A Happy and Lucrative Exit From Your Business?

Alex: We’ve got to think with the end in mind, right? What is the end goal and I know business owners are busy. And that’s what we can help with. We can help take out some of that load off the business owners when there’s just tons of thoughts scattering around is how do we get them on the table, think collectively, and say, you know, what do we need to do to plan for the future? And when you focus on driving the value of your business and making it go up it makes the timing of selling your business irrelevant because your business is always ready.

Anthony: Yeah good stuff Alex. So yeah, being a business owner can certainly be a lot. But taking the time to plan can make it well worth it. So you can visit our website schedule a quick 15-minute call with us. You can also download our Readiness and attractiveness assessment to see as a business owner.

What are the first steps in terms of how you think about your business and start to be forward-looking? Go to onedegreeadvisors.com download that today and then we’d love to talk to you.

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