Exit Successfully: An interview with national exit planning guru John Brown
This is an excerpt from my interview with John Brown, founder of Business Enterprise Institute, Denver, CO. Read the full interview in October’s issue of Business2Business Magazines. Register to meet John when he speaks in Lancaster on 11/1/16. http://conta.cc/2c8ni2Y
Do you find many business owners reluctant to leave? Do they not want to let go?
John Brown: No, the great majority want to leave. They want to have control over their lives which means not having to go to work every day. Our market research studies indicate that only about 10% of owners never want to leave their business and 80% want to leave in the next ten years. Any reluctance stems from not knowing what they will do, and not knowing if they will have financial security. What drives owners is that they find that with some planning they can accomplish their financial objectives and also achieve their “soft” goals. With planning their reluctance disappears.
What trends do you see developing that will affect the way business owners leave their businesses?
John Brown: Economic stagnation and the consequent dramatic decline in investment returns is a major “headwind” for business owners. Historically, an expectation of a 4% – 5% real investment return (i.e. net of inflation) was reasonable. Over the next twenty years, investment professionals expect real returns in the range of 4-6.5% for equities and 0-2% for bonds. Therefore, business owners need to be realistic about the amount of wealth they need to accumulate. Frequently business owners own the business real estate and will hold on to the real estate after the business sale as a source of income. Owners need a longer planning horizon for at least two reasons: 1) They need to accumulate significant wealth before selling their businesses; and 2) They need additional time to change their role in the business and grow value. Changing their role gives owners tremendous flexibility – if they structure it right, they will enjoy their business lives much more because they will be doing only what they want to do. They won’t feel chained to their businesses.
Also, we expect tax rates to increase because of our large government debt. Higher tax rates will mean lower after-tax proceeds, which will only exacerbate the problem.
Any other advice for owners looking to exit in the next 5-10 years?
John Brown: Make a decision to act today. The worst thing you can do is to wait – in five years, you’ll just be five years older and no closer to exiting your business.