Are You Ready to Exit? Why Owner Readiness Matters More Than You Think
“Owner readiness” is a common topic of discussion between business owners, CEPAs, and within the Exit Planning Institute (EPI), but what does it actually mean? And more importantly, why should it matter to you? Let’s break it down in this guide.
What is Owner Readiness?
Simply put, owner readiness is all about how prepared a business owner is to step away from their company and transfer ownership – on their own terms. For many, this means passing the torch to a family member, such as a child, sibling, or relative. Others might sell to an external buyer, private owner, or private equity company, or hand over the reins to employees through an Employee Stock Ownership Plan (ESOP).
Regardless of the exit strategy, true readiness starts long before an exit. So, when is the best time to start? The moment you launch or acquire the business. Early planning sets the stage for a smoother transition, greater value, and a future you can control. Owner readiness also means that your exit is ready at any time. Life happens, and there are factors we can’t predict or control, such as the economy, disability, disagreement between stakeholders, divorce, and even death. So, the best time to begin preparing is today.
Is Readiness Just for the Owner?
When we talk about “readiness,” are we just referring to the owner, or does the business need to be ready too? For a transition to be truly successful, the company must be significant – valuable, transferable, attractive, and always prepared for potential buyers.
What Happens if the Exit Isn’t on Your Terms?
Unexpected events can force an unplanned exit. Life is unpredictable, and sometimes transitions happen unexpectedly. That is why business owners should always keep the end goal in mind, viewing their eventual exit through a trifold lens:
- Business Preparedness: Strategically build and assess the human, customer, structural, and social capital for its true worth.
- Personal Planning: Define the next chapter for the business owner both professionally and personally.
- Financial Strategy: Align the financial goals for both the owner and the company.
Why Owner Readiness Matters More Than Ever
American companies are on the brink of a massive transition. According to the Exit Planning Institute’s National State of Owner Readiness™ Survey—the first national study since 2013 to assess how prepared business owners are to exit – 73% of privately held companies in the U.S. plan to transition within the next decade. This is a staggering $14 trillion transfer opportunity.
At first glance, this shift seems driven by aging Baby Boomers and older Generation X owners nearing retirement. But the data tells a different story. Only 19% of owners planning an exit were Baby Boomers, while 39% are Gen X—making up just 58% of the total. The rest? Younger Gen Xers and Millennials, who often take a “build and exit” approach, selling one business and moving on to the next venture. This generational shift is redefining business ownership in America.
The Bigger Picture: Why Every Business Owner Should Care
The impact of this shift extends far beyond individual exits:
- Over 30 million small businesses in the US power nearly 62% of American employment.
- Nearly 90% of their wealth is tied up in their primary asset: their business, making exit planning crucial to their financial future.
- 70% of “for-sale” businesses never find a buyer.
- 50% of all business exits happen unexpectedly due to outside pressures including economic shocks like the subprime mortgage crisis to global disruptions like COVID-19.
History has indeed shown how unpredictable forces can upend even the best laid plans. With a proactive strategy informed by owner readiness, you can better prepare yourself for a better exit solution.
The Cost of Waiting vs The Power of Preparation
The reality? Readiness isn’t just about securing your legacy; it’s about fortifying the future of your business. A well-prepared business is:
- More valuable to interested buyers
- More resilient against economic shifts and industry disruptions
- More profitable, with scalable operations and stronger leadership
Avoid being part of the 70% of companies that struggle to sell due to a lack of preparation. So don’t miss out on a golden opportunity of preparing now to ensure your business is a more attractive, marketable, and successful venture. Make your exit as successful and rewarding as your journey has been.
How Business Owners Are Preparing For a Profitable Exit
The conversation around exit planning has shifted markedly.
According to The 2023 National State of Owner Readiness Report, nearly 70% of business owners now rank exit strategy as a top priority – a massive jump from just 6% in 2013. The message is clear: owners recognize the importance of planning ahead and are actively seeking expert guidance.
Fortunately, experts like The Rocklin Group, CEPAs, and the EPI community play a critical role in the process by:
- Navigating the complexities of exit planning to strategically align your business, financial, and personal goals.
- Act as strategic quarterbacks, coordinating the legal, financial, and operational dimensions for the transition; and
- Fortify business value, ensuring that the owner and the company are better equipped to handle future scenarios.
More owners are assembling dedicated teams, developing strategic exit plans, and ultimately unlocking greater value from their businesses.
CEPAs can assemble this team, develop strategic exit plans, and help owners navigate their exits with confidence while strengthening their businesses and teams.
The Path to A Successful Exit
Owner readiness is not just about preparing for an eventual sale or transition – it’s about future-proofing your business and financial security. With uncertainties such as economic downturns, personal challenges, and shifting market dynamics, having a well-defined exit strategy is essential.
Business owners must proactively build value, strengthen their companies, and align personal financial goals to avoid becoming part of 70% of businesses that fail to sell. By taking a structural approach and seeking guidance from experts like CEPAs, owners can confidently navigate their exits while securing their financial future.
Conclusion: Why Early Exit Planning Gives Owners a Competitive Advantage
As the landscape of business ownership is fast changing, exit planning has become a fundamental necessity. With a massive $14 trillion in business transition on the horizon, owners who prioritize readiness today will have the advantage of a well-planned and profitable exit.
A successful transition is not just a last-minute decision – it’s a process that starts now. Whether selling, passing down, or restructuring, early planning ensures owners maximize their business’s value, protect their legacy, and create a seamless path to the next chapter of their lives.
