Very early in our marriage, over three decades ago, my wife and I found ourselves in a young couples’ discussion about spontaneity. Fairly typical for our station in life, especially when one half of the couple is a plodding “columns and rows” banker. The outcome: that Friday night we would go somewhere unexpected with no real plan other than our destination.
A native Kentuckian, my wife surprised me with a trip to Mammoth Cave, KY. I was still so new to the Middle Tennessee area that I had no idea that one of the seven natural wonders of the world awaited just a few hours away. I may write a travelogue one day about the tourist magic of Mammoth Cave, KY.
For now, the drive was much longer than I thought, and when we pulled off the interstate the lodging options were limited to a handful of classic drive-up, one-story motels, most of which were flashing neon “No Vacancy” signs. We pulled into one that appeared to have rooms, parked out front, and I approached the front door. Locked. Curtains pulled across the upper half of the door. No signs of life. Desperate at the thought of spending the night fully reclined in my Mazda GLC, I banged on the door and waited a few moments. An elderly woman in a tightly cinched bathrobe approached the door, but did not open it. She peeled the curtain back and peered out the glass, squinting at me, suspicious. I told her we were looking for a room, and she replied in her thick Southern accent, “Well, you walking or riding?” I pointed to the GLC and assured her we were riders, imagining all the while the business mix of this establishment and what type of hitchhiker or nomad may reside within.
She opened up and we got a room – musty, several cockroaches, generally outdated and stained bedclothes. The honeymoon after the honeymoon! Neither of us slept much that night. As I tell my kids, “As long as you survive, you got a good story to tell!” I tell this one often.
I tell it now because I have been reflecting quite a bit lately on the planning horizon of Small Business owners, particularly with respect to business exit strategies. A number of professionals in my networking circle have observed a general lack of preparedness for business exits on the part of Small Business owners, which jibes with my own experience as a banker. Then, I saw this statistic: according to the Q3 2019 Market Pulse Report published jointly by the International Business Brokers Association, M&A Source, Pepperdine Graziadio Business School, and the Pepperdine Private Capital Project, among businesses under $5 million in annual revenue (broken further into annual revenue subsets), between 80% and 95% plan the sale of their business for less than a year. More remarkably, at least half of the businesses do no planning at all, with a couple of the subsets reflecting over 70% with no planning, including the $2-$5 million annual revenue segment.
Small businesses are illiquid in the continuum of investment choices, yet for most Small Business owners the business is still their principal financial holding – as well as one of their primary emotional commitments. Many treat the business like a family member.
Momentum requires a vector, which includes both direction AND distance. If we follow Stephen Covey’s maxim of “begin with the end in mind”, my belief is that every business owner should consider the terminal value of their business as part of their wealth planning process. Understand how businesses are valued in your industry and measure your progress against those metrics every year. If it is measurable and trackable, you can achieve it, even though the journey may be long.
One thing I do know, for something as valuable and beloved as the business you have toiled to grow, it is a mistake to treat your business exit strategy like a spontaneous trip to Mammoth Cave, KY. I lay awake listening to the crinkling of cockroaches and the “walkers” milling around in the parking lot. You do not want to be staring at the ceiling all night, wondering why your retirement plan is way underfunded and your exit options limited. Much higher stakes, and I’m afraid a story too painful to tell afterward.
