How to plan for life after business: Guest view
It's an all-too-common occurrence. An entrepreneur dedicates their life to establishing a profitable enterprise, eventually exiting the business with the expectation of a life of leisure and luxury — only to find they regret the decision.
According to the Exit Planning Institute’s Readiness Survey, 75 percent of business owners “profoundly regretted” selling their business 12 months after finalizing the deal. How do so many individuals, with the freedom to live the life or create the legacy they desire, end up with such remorse?
While financial concerns — such as a perceived failure to have maximized value from their sale, or the disregard for proper income planning in retirement — can certainly come into play, the answer lies more often than not in their lack of understanding of how to manage their newfound freedom, and a subsequent loss of identity and community that their former business provided for them.
This should come as no surprise considering 71.1 percent of small-business owners take less than 10 days of vacation per year, despite the ability to set their own schedules. In the period leading up to a sale or transition, business owners should dedicate one day each week to experimenting with new hobbies, spending time with the family, or connecting with old friends. A thoughtful transition should be a multiyear process that provides ample opportunity to focus on freedom, purpose and relationships.
For those who did not have the foresight to prepare, there are several steps that can be taken after the sale to improve the chances of a successful transition. These include taking time to rest and contemplate, reinvigorating relationships with friends and family, identifying values that are of utmost personal importance and matching them with appropriate activities, revisiting old hobbies or learning new skills, engaging in charitable endeavors, exercising regularly, and traveling to places they have always wanted to visit.
Developing a short-term game plan can be helpful as well. Choosing a single community activity to participate in, finding one new skill to learn and/or organizing an extended family vacation could be a viable start. Simplicity is key, yet there must be enough activity to maintain a degree of the structure, routine and intellectual stimulation that was present in life before the sale.
During this process, joining a peer group with other post-sale entrepreneurs, such as Tiger 21, or engaging a coach to act as a sounding board during this transitional stage is often recommended. “Most executives get so wrapped up in the sale of their company that they give little time or thought to ‘What’s next?’” said John Dame, CEO of an executive coaching firm specializing in exit planning and post-sale transitions. “I suggest they slow down, and once they have taken a few months to decompress from the pressure of the sale process, they should find someone to talk with on a regular basis.”
After the sale, an entrepreneur will typically experiment with a new activity toward the tail end of the year following the sale. These activities rarely lead to significant, continued involvement. According to a 2012 study by Coutts, it took 66 percent of entrepreneurs two years or longer to find a lifestyle they were happy with.
This initial transition period is meant to be a learning experience where entrepreneurs can experiment by matching values they perceive to be of personal importance with activities accessible to them in their community.
But post-sale life is often quite different than many expect. While 19 percent of post-sale entrepreneurs planned to be active in social enterprises and nonprofits, only 5 percent committed to these activities according to the Coutts study. Although 28 percent had ambitions to invest or support other businesses, only 11 percent actually did so. In fact, 40 percent of post-sale entrepreneurs went back to work to start up or run another business, and 25 percent went into retirement.
Still, some do find success pursuing civic, philanthropic or personal interests. Yet with only 40 percent of post-sale entrepreneurs stating that their life is more rewarding post-sale compared to when they were running their business, the key is finding activities that match the values and preferences of the former business owner and learning how to develop identity and community through these post-sale endeavors.
Finding purpose after a sale is never easy, but with time and a little work, each individual can wake up every day to a fulfilling life.
Brian Luster is a senior wealth manager based in York for BNY Mellon Wealth Management for Central Pennsylvania and Baltimore. Before joining BNY Mellon he was founder and CEO of a boutique multifamily office in New York City, as well as the managing member and portfolio manager of an event-driven hedge fund.