2018 Carolinas Exit Planning Survey ... - VR Business Brokers Exit... · Business owners are generally inexperienced and unprepared to properly exit their businesses. Succession planning

2018 Carolinas Exit Planning Survey Report

Presented in partnership by:

Spring 2018

2018 Carolinas Exit Planning Survey Copyright © 2018


Introduction Presented in partnership between BGW CPA, Milazzo Webb, South State Bank, and VR Mergers and Acquisitions, the 2018 Carolinas Exit Planning Survey was conducted in the spring of 2018 in an effort to give business owners thoughts and understanding around how prepared they are, if at all, for their inevitable exit from their businesses. The purpose of the survey fits closely with the missions of the sponsoring organizations, namely the creation of a proactive succession planning process keenly focused on the goals and objectives of the exiting business owner. Understanding where the average business owner is in the exit planning process was, therefore, essential. The electronic survey, distributed via email, consisted of 20 basic questions that could be answered in approximately 6 minutes. The survey was anonymous, but questions regarding title, industry, and company revenue range were added to in an attempt to enrich the data.

Report Summary

This report is composed of three major parts: 1. a summary of the demographic data of respondents; 2. an overview of collected data, and; 3. recommendations for business owners interested in improving their succession planning

process and for advisors wishing to enrich their scope of services.


Demographics of Survey Respondents Middle-age and older respondents were most represented. Race and gender were not collected.

● 46.4% were between the ages of 37 and 52. ● 46.4% were between the ages of 53 and 71 (this

represents the Baby Boomer population which is likely closer to retirement).

● Very few respondents reported being <37 or >72.


The companies represented were generally smaller in regard to annual revenue.

● 70% of the sample were companies with less than $5M in annual revenue. ● 20% were companies with revenue between $5M and $25M annually. ● Relatively few companies with revenue in excess of $25M responded.


A good cross-section of industries was represented, though professional services companies were most numerous.


In general, respondents had owned their businesses for relatively short periods of time.

● 22% had owned their businesses between 1 and 5 years. ● Nearly 30% had owned their businesses between 6 and 10 years. ● Responses dropped in the middle years (between 11 and 15 years) and rebounded

at the 16-30 year mark.

When asked when they planned to transition out of their companies, 60% of respondents indicated they would within the next 10 years (33% within 5 years). 40% had no plans to transition at all. The age breakup of our participants likely explains this split; surveys routinely reveal that Baby Boomers plan to transition from their businesses within 10 years. Though many business owners admit they are not sure of their options and how to proceed with forming an exit plan, most understand they will need some sort of advice. The vast majority will consult with their CPA, their business attorney, and their spouse before making a decision. These three parties are typically a business owner’s most trusted advisors.


Though many business owners admit they are not sure of their options and how to proceed with forming an exit plan, most understand they will need some sort of advice. The vast majority will consult with their CPA, their business attorney, and their spouse before making a decision. These three parties are typically a business owner’s most trusted advisors.


That consultation is desperately needed, as very few respondents indicated that they felt “ready” to transition away from their businesses. On a scale of 1-5, 1 being not at all ready and 5 being completely ready, just 7% said they were completely ready to exit. 38% said they were not at all ready. The range fell as follows:

Mirroring the overall trend of the general populace to continue working after officially retiring, the vast majority of business owners here indicate they will continue working in some capacity -- by semi-retiring, performing consulting work, volunteering, or investing in another business. Just 15% indicated they plan to fully retire and stop working altogether.


Key Findings Overall, our survey results reinforce commonly held assumptions on owner readiness for exit. However, surprises do exist. Though our sample is relatively small, the survey does uncover important details about where business owners see themselves in relation to exit planning and how advisors can best serve them during transition. 74% of our respondents had never sold a business before. Planning, Communication, Understanding

Despite constant urging from industry experts and professional advisors to implement an effective exit plan, the amount of planning for that transition on the part of surveyed participants remains low.

● 77% revealed low confidence (3 or lower on the 1-5 scale mentioned above) in their readiness to exit the company.

● 60% do not have a management team that could take over if something happened to them (37% do not have the personnel, 23% have the personnel but no plan).

● 36% reveal uncertainty around how they will transition out of the company.

These results generally are in line with those from other surveys on the issue of exit planning and should serve as a wake-up call to those in advisory roles about the quality of service they are providing.


Though we expect younger business owners won’t yet have a transition plan in place, half of our respondents were over the age of 53. We should be particularly concerned about the number of business owners nearing typical retirement age that do not have viable exit plan in place. Internal vs. External A fundamental choice facing business owners as they plan their exit is whether to sell internally (to family, employees/management, a partner, or stakeholders) or externally (to a third party such as an equity firm or strategic buyer).

● 36% of business owners are unsure of how they’ll transition. ● 28% plan to sell externally. ● A combined 29% plan to sell internally (19% management buyout, 7% transfer of

ownership, 3% through employee stock options).

How well the surveyed business owners understand each of these options and how to prepare for them is unknown. Typically, business owners only have a partial understanding of each of these options. Advisors can play a key role in educating their clients and guiding them to right decisions.


Valuation and Timing Valuation is a critical first step in exit planning, but our survey revealed that only 25% of respondents have gone through a formal valuation process. That is a striking number, and it’s particularly concerning for a group of business owners who indicated they’d like to sell within 10 years (again, 60% of our survey respondents indicated they’d like to exit their businesses within the next decade). Business owners just aren’t seeing the importance of valuation in their exit planning.


Respondents vary greatly in their expectations regarding the length of time to sell.

Post-transition

Though often neglected, one of the most important topics of the exit planning process is what happens after the transition. Emotional and financial aspects, all very personal in nature, should be considered to avoid the “seller’s remorse” often felt by owners who sold hastily.

● Most respondents will continue working (see above) in some capacity. The desire for business owners to retire fully is relatively low.

● The survey reveals the need for comprehensive financial planning that addresses the needs of the business owner post-transition. 75% of respondents indicate they need the income from their business to maintain their lifestyle.

● Only 43% have determined how much they need to net (after taxes) to fund their retirement.



Additional Questions and Findings


Conclusions and Recommendations

● Business owners are generally inexperienced and unprepared to properly exit their businesses. Succession planning is often the hardest test of entrepreneurship.

● Advisors must do a better job defining best practices, collaborating with other advisors, and educating business owners around succession options so that business owners can move to a more concrete version of an exit plan -- one that is documented, well-communicated, and used as a guide for day-to-day operations.

● The impending retirement (whether full or partial) of the Baby Boomers means an unusually high number of businesses will soon be ready for sale.

● The exit plan and the estate plan should be considered together and emotional aspects of post-transition life considered.

● Successful transitions are typically managed by a team of advisors, not a single person. Business owners should be wary of anyone who attempts to manage it all.

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2018 Carolinas Exit Planning Survey ... - VR Business Brokers Exit... · Business owners are generally inexperienced and unprepared to properly exit their businesses. Succession planning