You’re Not Getting Any Younger—Plan for Your Future Now

BKDnext

Have you attempted to leap over a fence in the last couple of years and discovered your memory is better than your physical abilities? You know the feeling. In your mind, you’re still 30 years old. Through your eyes, you see the same moon, sunrise, and world of activity without seeing your own reflection.

We’re a collection of dynamic experiences, learnings, and accomplishments and just not ready to give it up. We’re not old; we’re simply aging.

Take a moment and think about how fast life has streamed along. Isn’t age 65 just a whisper away? Think back to when your parents were advancing past age 65. Is it time to jump a fence or time to be planning? As you contemplate the answer to this question and your readiness to develop your transition plan, consider the following ideas:

  • Time is of the essence
  • There’s much to do and so little time
  • Some things just take time

Time Is of the Essence

Clearly, the 2020 pandemic has ushered in a heightened level of uncertainty. It has adversely affected businesses, families, and individuals. Pre-COVID-19, most businesses were thriving. Our economy was in growth mode, and owners were preoccupied with expansion plans. Financially, many owners were seeing record profits and record distributions. Available time or motivation for transition planning was in short supply. Recent discussions with owners have painted a different picture. Pandemic-induced shutdowns and the general slowdown have given many owners the time and space to contemplate the future.

Owners cite concern about the pandemic’s effect on their business. Some are deeply concerned about whether the value of their business will ever be the same. Some feel as if they may have missed their “exit door.” Others who have fared reasonably well feel a new sense of urgency and don’t want to put off their succession plans any longer, with many stating they don’t want to “take another ride on the roller coaster.” 

Research and our experience working with owners suggest that those who have a well-thought-out transition plan are more likely to achieve their lifetime transfer goals, and the businesses transitioned are more likely to be successful into the future. When time is on their side, they take advantage to build a valuable business with a strong team in place. Given the uncertainty of the times, it’s better to be prepared.

For the owner who assumes he or she will sell the business one day for a lofty valuation, the pandemic may have served as a wake-up call. Besides company profitability taking a significant hit, for certain industries, valuation multiples have been negatively affected. Again, economic uncertainty may be with us for a while, and a future seller of a business may find out that he or she missed the optimal time to sell the business. Because it’s always hard to “time” the market, it’s better to be prepared for the opportunity when it arises.

For owners of structurally sound businesses who desire to transfer ownership to family someday, the pandemic-induced reset in value may have created an opportune time to transfer assets. Depressed valuations may help stretch gifting dollars, and the current Section 7520 interest rate—at record lows—makes estate planning techniques such as a grantor retained annuity trust attractive.

As the leader of your business, you have many demands on your time. Clearly, these demands may crowd out your best intentions, and you may procrastinate developing your transition plan. If in addition to these demands you now have a level of worry, act now while you have a sense of urgency.

There’s Much to Do & So Little Time

Based on our experience helping business owners develop their transition plans, it’s clear the overwhelming number of issues and planning options can create paralysis. Personal, family, ownership, and business decisions can all compete for your attention. For this reason, it’s important to follow a systematic approach, allow enough time—which may be measured in years—and prioritize. Remember, your time is a precious resource. 

As you assess your personal financial outlook, consider how much value you will need from your business to achieve your personal and family goals. If you’re not sure where to start, consider undertaking a financial needs analysis. Once you know what your goals are and where you stand currently, you’re better equipped to evaluate your exit options and time horizon.

An area of planning that doesn’t get enough attention is figuring out what your “encore” looks like. As a business owner, so much of your passion, energy, and even identity are tied to your role as owner and leader. You need to wrestle with where your fulfillment will come from in the future and begin exploring those avenues. A former business owner once noted, “You can only play golf so often—after a while, I needed something more.”

Your business is the engine. If you take care if it, it will drive a multitude of planning options and a successful transition outcome. Previously, we touched on the need to build transferrable value in your business. To do this, you need to focus on developing your team and executing on your strategic growth plans. Interestingly, if your focus is here, at the same time you’re addressing continuity needs for your family, partners, and employees, you’re also reducing contingency risks to your long-range plans.

Finally, while the pandemic may affect your business negatively or positively, how you and your team pivot will be critical to your business success and your transition plans. Consider how the market landscape is changing and how you will adapt to capitalize on it.

Some Things Just Take Time

By now you have realized that transition planning takes time. It should be clear that failing to plan will have negative outcomes for you, your family, and your business—and will certainly reduce your options.  

Plans take time to develop and deploy. Growing or restoring business value takes time. Growing your nest egg takes time. Developing your successor and management team takes time. And, as most business owners will attest, removing yourself from the day-to-day takes time.  

Regardless of the exit option you ultimately determine as right for you, whether you’re transferring ownership to family or selling to management, a third-party buyer, or even an employee stock ownership plan, the process takes a considerable amount of time, probably more than you envision. Even with competent advisors and a well-prepared business, transactions take many months. For this reason, it’s important to not procrastinate and begin the planning process today.

Yes, we may misplace our purse, wallet, or keys more often. Our memory of names is beginning to slide, but our spirit and passion remain high. We’re not old—we’re simply aging. The pandemic has affected you and your businesses in many ways, and uncertainty abounds. This may have stirred a sense of urgency in you. We’re not getting younger, and common sense and reason need to be our guide. It’s time to plan.

For more information, reach out to your BKD Trusted Advisor™ or submit the Contact Us form below.
 

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