$15+ trillion of wealth is, or soon will be in transition, i.e. business exit planning, which the contributory role and value of intangible assets play a significant part!
The Exit Planning Institute (EPI) and its (Phoenix) Arizona chapter…conducted a 2017 survey titled ‘State of (business) Owner Readiness’.
The objectives of this exit planning survey were straightforward, i.e., (a.) identify the states – stages of ‘exit planning’ readiness of business owners, and (b.) encourage surfacing more of the wealth the businesses have accumulated.
Executing the survey included…identifying – incorporating a business’s intangible (non-physical) assets relative to their respective contributory role and value to wealth creation, e.g., originating – embedded in their intangibles.
The reality is that as much as $15+ trillion of wealth…is currently in some stage or will soon be poised to transition – exit, providing, of course that…
• effective exit plans have been developed, and those plans,
• fully incorporate the value of foundational – contributory intangible assets a business has developed, acquired, and accumulated.
Identifying – surfacing these intangible (asset) sources of value and wealth have relevance to every business owner…
• because, for most, 80+% percent of their financial worth originates and is held in their intangible assets.
• because, operational familiarity with company’s intangibles, is now a business imperative.
• however, large percentages of business owners assume, or, are ill-advised to dismiss their intangibles insofar as accounting and their contributory role, value, and cumulative wealth creation, notwithstanding, their contribution to competitiveness and creating – sustaining sources of revenue.
The EPI Arizona survey compared its findings to…EPI’s National Survey, as well as other EPI regional surveys conducted over the previous four years. This prudent comparison added substantial nationwide credibility and relevance to the survey’s findings.
A particularly distinctive – worthy feature of the EPI Arizona Survey…was that individual business owners, nearing exit-transition, were encouraged to offer suggestions, aimed at other business owners, as gestures to improve the probability of achieving – structuring more successful (and lucrative) exit – transition planning.
Those suggestions, among other things, included strategies and encouragement to ‘bring to the surface’…and assess-value each business’s (internal) origins-sources of wealth, i.e., those created by intangibles they had developed and nurtured, but, recognize – incorporate same as foundations to a businesses value, sources of revenue, and competitive advantages, etc.
Doing so, would variously ensure intangible assets would be fully incorporated in exit planning and elevate their level of wealth.
• there are approximately six million privately held businesses currently operating in the U.S.
• collectively, these companies represent approximately $30 trillion in annual sales which conservatively translates to $15 trillion in (accumulated personal) wealth.
• according to US census data, ‘baby boomers’, i.e. people now ranging in ages 53 to 71, own 63 percent of those 6 million privately held companies and businesses.
• the data suggests ‘boomers’ are holding on to their businesses (not fully exiting) for longer periods of time.
• this translates to nearly four million ‘boomer’ owned businesses are currently variously poised to transition to an exit.
• assuming conventional business valuations are 50% of annual sales, this does not wholly account for – incorporate the value of accumulated (contributory) intangible assets.
Obviously, the continuity between business ownership and exit planning matters…not just to the families of business owners, but also to their employees, vendors, customers, charities, vendors, customers, and communities in which the company resides and contributes to economic and social well-being to the community-as-a-whole.
Given the obvious significance of intangible assets in business owners’ (overall) wealth portfolios…their (exit – transition planning) advisors’ inclination to recognize and their ability to monetize – exploit the wealth – value created by a businesses intangibles, is, there should be no question, integral to effective exit – transition planning, especially when planning commence well in advance of officially executing an exit plan. Be assured, doing so, and in this manner, will have a significant impact on owners’ financial security and lifestyle, post exit.
The significance of the business (tangible and intangible) asset valuation and their inclusion in transition – exit planning…carries substantial strategic importance that extends well beyond business owners and their family, e.g.,
• failure to effectively provide for the continuity of a business owners assets, i.e., both tangible and intangible,
• not only affects owners’ personal wealth, but also the various stakeholders who depend on a business owner’s (fiduciary) responsibilities to transition to an effective and successful exit.
Of course, what happens when businesses – business owners do not engage in effective transition – exit planning…well, in numerous instances, (a.) business owner’s life’s work may be liquidated for a fraction of its real value, and (b.) the business shuts down, employees lose their jobs and the various stakeholders – beneficiaries, suffer.
Historically, and, unfortunately, in the U.S. today, the successful business transition – exit rates lies only in the 20% to 30% range…these findings (collectively) emerged from surveys conducted by (a.) the Exit Planning Institute, (b.) PricewaterhouseCoopers, (c.) the Alliance of Mergers and Acquisitions, (d.) Business Broker Press, and (e.) the Family Firm Institute.
So, obviously, the need to increase the number of successful transitions-exits…has some urgency, because, the aforementioned ‘boomers’, as it happens, currently own-hold nearly two-thirds of all privately held businesses approach the inevitability of aging and the not-so-coincidental desire to successfully and lucratively exit their business. Note: of 2017, boomers’ ages ranged from 53 to 71, with an average of 62 years!
Yes, boomers are holding onto their businesses longer…than previous generations, but that reality does not dismiss – excuse them from neglecting preparing for their business transition and exit.
Instead, boomer business owners are obliged to recognize…that transitioning – exiting their business is an important, necessary, and a prudent task, if not fiduciary responsibility. After all, for most, establishing a sound exit plan is a once-in-a-lifetime activity, that requires focus, action, and time to do properly.
As consistently commented in this blog….80–90 percent of most business owner’s net worth is likely to be ‘in their business’…however, as an intangible asset strategist and risk specialist, it is absolutely-essential for readers (business owners) to give equal credence to – incorporate this economic fact in the exit planning…
it is an economic fact today, that 80+% of most company’s value, sources of revenue, competitiveness, and sustainability lie in – emerge directly from intangible (non-physical) assets, not tangible (physical) assets!
When this economic fact is dismissed and not fully integrated in exit planning processes…‘boomer’ business owners can anticipate their $15 trillion in accumulated wealth may not fully surface, or, if it does, it will be revealed in fractions of its real contributory value.
Michael D. Moberly July 7, 2018 St. Louis email@example.com ‘The Intangible Asset Blog’ (http://kpstrat.com/blog) where attention span and action really matter!
This report originally titled THE STATE OF OWNER READINESS 2017 ARIZONA REPORT was conducted and written by Christopher Snider and the Exit Planning Institute. It has been heavily adapted by Michael D. Moberly. Notably, the report was conducted and written with the assistance of (a.) Kimberle Dyer, the President of the EPI Arizona Chapter and the Cofounder of Keystone Capital Management Group, (b.) the Arizona Owner Forum Council, (c.) Joseph Evers of Evers Robinson LTD, (d.) Norman Lemus of UBS Financial Services, (e.) David Noosinow and Anthony Tanner of BNY Mellon Wealth Management, and (f.) Rick Wilcox of Point North Group LLC.