The Cost Of Not Having an Exit Plan
By Peter G Christman, Cepa
Not too long ago, a CEPA emailed me and asked, “what is the cost of not having an exit plan or master plan?” I thought that was a great “ask” because I have never seen that question quantified. I wrote and told him I needed to think over that question. This is an attempt to provide that CEPA with some kind of intelligent answer.
Yes, it depends on a lot of factors: in fact too many to mention in this space. The real answer is that not having a plan can only be measured by three costs: loss of enterprise value, the morality cost of not doing the right thing, and the cost of timing.
The real cost of not having a plan is the cost of increased risks in each of the above areas!! Having a Master Plan greatly decreases your risk factors!!
Loss of Enterprise Value:
The biggest risk in all of these areas is the fact that business owners are human!!
What will be the effect if the owner is not involved or gone from operations forever??
I have seen statistics from the financial planning industry that says 50% of businesses who lose their owners because of disability or death become insolvent in two years.
There is no available guarantee that provides for owners to be around today, tomorrow, next month, next year, etc.
Just how is this risk quantifiable? Again, “it depends”! The size of the business, current business value, business operations assessment, industry, company resources, people, products, facilities, etc. all come into play in calculating the risk of being “human”.
If a Master Plan is in effect to “maximize the value of the business” as described in “Leg One” of a Master Plan and something happens to the owner, at least the blueprint for success and increasing company value is in place for others to implement.
THE MORALITY COST OF NOT DOING THE RIGHT THING:
Often a business owner is involved in being a “lifestyle” owner and they forget the “responsibilities” they have as a business owner. One the biggest they have is to their employees.
The company’s future success has a resonating effect on the success of each employee’s life and family.
BUT, if the owner doesn’t have a Master Plan in place and the business fails or their growth deteriorates and value decreases what is the cost effect of upon their employees and families????
How is that measured???
THE COST OF TIMING:
This cost covers a lot of risks in all legs of the stool.
In “Leg One”, what if products, services aren’t timed perfectly as they would be in a good Master Plan. How about the recruitment of personnel in a timely manner?
In “Leg Two” what about the timing of someone selling their business without appropriate financial planning? What if their financial resources fall short of the owner’s life span, etc.? What if there is no estate planning or poor planning and the business has to be sold to cover taxes when the owner dies?
How can the costs of these results be measured??
In “Leg Three”, what if they transition from the business without a life plan? What if family members aren’t involved? What if the owner loses their personal identification? What is cost of all of this personal non-planning?
I could write a book (and have) about this subject of “What is the Cost of Not Having a Master Plan or Exit Plan”.
Cost can only be measured in the “risks” that aren’t covered or are created without a plan in place.
Of course, the biggest risk that every owner must cover is the risk of being “human”!!!
This makes having a plan in place…………………………..mandatory!!!!
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