Five Key Wake-Up Calls for Ambitious Business Owners

An older businessman looks upset as he looks at his laptop at his desk.

In the world of business owners and founders, confidence is the fuel that drives decisions, inspires teams and enables risk-taking and innovation. But even the boldest owners know that feeling a little scared sometimes isn't a weakness — it's often wisdom in disguise.

In my experience, many issues that cause businesses to fail are years in the making. And many owners are closer to being out of business than they realize.

Issues that undermine a business's financial health often go undiagnosed until owners consider their exit. The 2023 National State of Owner Readiness Report by the Exit Planning Institute reveals some critical areas where business owners tend to be unprepared, and the consequences could be dire.

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Here are five key issues and steps to take to avoid the scary stuff before it's too late.

Business exit planning problems in a nutshell

1. Putting off estate planning

Just 30% of owners have a written estate plan, and only 24% have a current will.

Estate planning isn't sexy, but it can help support succession plans, preserve business and personal assets and spare your family from a nasty tax bill.

Without a proper estate plan, your business and personal assets are at risk, potentially leaving employees and family unprepared for the future.

Take action: Begin as soon as possible by consulting with estate planning professionals to create a comprehensive plan, including wills and trusts. Establish or update your estate plan to reflect changes in your business, personal life and tax laws.

Communicate your plan with family and key stakeholders to ensure everyone is aware of your intentions and prepared for the transition.

2. Delaying personal financial planning

Many business owners are hyper-focused on revenue and the daily challenges of running their business. But even a thriving business may not support long-term goals if your personal, business and family finances are out of sync.

About 42% of business owners lack a written personal financial plan prepared by a professional financial adviser. This is why we talk about putting personal, family and business financial planning on "parallel paths." All are essential to achieve a successful transition and post-exit goals.

Take action: To ensure your financial future aligns with your business exit strategy, partner with a CERTIFIED FINANCIAL PLANNER® (CFP®) — ideally one with Certified Exit Planning Advisor (CEPA®) credentials — to build a comprehensive, personalized plan.

Clearly define your financial goals, from retirement and investments to lifestyle needs, and commit to regularly reviewing and adjusting your plan to stay on track amid changing market conditions.

3. Exiting without a plan

Just 42% of owners have a formal, written transition plan for their company. This is critical given that 49% of business owners want to exit within the next five years.

Without a formal exit plan, you may face significant challenges in achieving a smooth and successful transition.

Take action: To exit your business smoothly and successfully, work with your adviser to create a clear, detailed plan that outlines your goals, timeline and transition strategies.

Once your plan is in place, communicate it with key stakeholders and begin executing the necessary steps to achieve your desired outcome. Schedule regular reviews to keep your plan on track.

4. Dependence on business income

Research shows 70% of business owners need the income from their business to support their chosen lifestyle. This stat highlights your "wealth gap."

If you need $3 million to support your long-term post-exit lifestyle and you have $500,000 in personal assets and sell your business for $2 million, your wealth gap is $500,000. So, part of your exit plan will be how to close that wealth gap, starting now.

Many owners of small and midsized businesses rely heavily on their business as their primary — sometimes only — source of income.

Take action: To secure your financial future, focus on diversifying income streams now to reduce future reliance on business earnings. Continue building business value to maximize your net proceeds when it's time to exit.

At the same time, develop a financial plan that supports your long-term independence and lifestyle goals, ensuring you're not solely dependent on proceeds from your business sale or transition.

5. The 5 D's

In presentations to business owners, this portion of our program typically takes the oxygen out of the room. About 50% of business exits are involuntary, meaning owners don't proactively decide to exit.

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Instead, they are compelled to exit by one or more of the "5 D's": death, disability, divorce, distress or disagreement (with business partners).

Many owners don't like to consider that they won't be able to choose how and when they will exit the business. These discussions can be deeply uncomfortable, but it's far better to face the discomfort now than be unprepared for the 5 D's when they occur.

Take action: "Be prepared" is sound advice for business owners as well as Boy Scouts. To protect your business and family legacy from unforeseen events, build robust contingency plans that cover involuntary exit scenarios, such as illness, divorce or financial distress, through tools including insurance, buy-sell agreements and emergency funds.

Regularly review plans to keep them relevant and ensure they are clearly communicated.

Plan to exit fearlessly

The statistics are indeed scary, but they need not spell doom for your business. Instead, let them serve as a powerful motivator.

Now is the time to start understanding your business valuation, the steps to build business value and how you will fund your post-ownership phase.

To move forward with confidence, start with a business valuation and a personal financial audit. Then, build your exit strategy with a CEPA-certified adviser.

Content in this article is for general information only and not intended to provide specific advice or recommendations for any individual. 2025-8650

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Paul has truly lived the American Dream — beginning his career in financial services with no formal training and rising through the ranks to prestigious positions like CEO of BPU Investments. As an adviser at Wealth Enhancement, Paul uses his financial planning, investment management and business skills to work with CEOs on retirement and succession plans and provides guidance on financial wellness. Paul is also a Certified Financial Planner (CFP®) and Certified Exit Planner (CEPA®). Paul is also a Five Star Wealth Manager (2017- 2024) award winner.