Many business owners expect to be able to sell whenever they like. In reality, owners can’t control when they are able to sell, according to a recent insightful Forbes article, “Study Shows Why Many Business Owners Can’t Sell When They Want To” penned by Mary Ellen Biery. An Exit Planning Institute (EPI) study revealed that many business owners are “woefully unprepared” to sell.
Christopher Snider, President and CEO of EPI, says a large percentage of business owners have no exit planning in place. This fact is made all the more alarming because most owners have up to 90% of their assets tied up in their businesses. Snider says most business owners will have to sell within the next 10 to 15 years, and yet, are unprepared to do so. Only 20% to 30% of businesses that go on the market will actually sell, Snider says. So what’s the problem?
Snider thinks it’s one of quality. True, it has been a seller’s market for businesses in the last year or more, Snider says that’s due to unattractive supply rather than to strong demand. “Multiples are historically high, but I think that’s more because the private equity companies and the strategic buyers don’t have a lot of businesses to pick from,” he said. In short, Snider says there’s a lack of good quality businesses to buy.
As of 2016, Baby Boomer business owners, who were expected to begin selling in record numbers, are waiting to sell. “Baby Boomers don’t really want to leave their businesses, and they’re not going to move the business until they have to, which is probably when they are in their early 70s,” Snider said.
The EPI survey of 200+ San Diego business owners found that 53% had given little or no attention to their transition plan, 88% had no written transition to transition to the next owner, and a whopping 80% had never even sought professional advice regarding their transition. Further, a mere 58% currently had handled any form of estate planning.
Two-thirds said “Getting full value for my business to fund retirement or other business interests” was a primary goal, but fewer than 40 percent had a formal valuation conducted in the last three years, and 65 percent have never had their financial statements audited.
Adding to the concern was the fact that a third of owners had not even thought about management succession, and only 25 percent were comfortable that their managerial team would be successful if the owner wasn’t involved after the transition.
In Snider’s view, the survey indicates that many business owners are not “maximizing the transferable value of their business,” and additionally that they are not “in a position to transfer successfully so that they can harvest the wealth locked in their business.”
All business owners should be thinking about the day when they will have to sell their business. Now is the time to begin working with an experienced business broker to formulate your strategy so as to maximize your business’s value.