You’ve spent years building a great business. So, of course, you expect you will get well rewarded when you one day eventually exit.
The problem is it often doesn’t happen. After years of blood, sweat and tears, many business owners don’t get rewarded at all.
Most business owners assume if they build a profitable business it will automatically lead to a successful exit. It might, but if it does it will probably involve a solid dose of good luck.
There are a few key things that derail most business exits. Most business owners don’t know about them; or don’t want to know about them. Can you handle the “uncomfortable truths”?
Truth #1: Most business owners aren’t ready for their business exit
Research consistently indicates that over 70% of business owners have no business exit or succession plan. There is a mixture of reasons for this:
- A lot of business owners only start spending time on their business exit once they’ve decided to exit.
- Most business owners have little or no experience exiting a business – it’s something only a few do more than once or twice in their life.
- Most professional advisers tend to focus only on the transactional aspects of business exits.
- There is very little data available on family and privately owned businesses, so there isn’t a great deal of research on business exits.
- There are only a handful of really good books on business exits.
- The experience of business owners who have achieved successful business exits doesn’t tend to get passed on to other business owners.
Truth #2: You often have little control over timing
Many business owners have little control over the timing of their exit.
The two most common events that lead to exits are:
- a business owner or close family member experiencing a serious health issue; or
- an unsolicited offer being received for their business.
Exits also often occur as a result of divorces or other serious family issues, conﬂict with business partners or serious ﬁnancial issues.
An unprepared business owner plus an unexpected event precipitating a business exit is a potent and dangerous cocktail. From my experience, it rarely leads to a good outcome.
Truth #3: Good business exits take much longer than you think
Most business owners signiﬁcantly underestimate how much time and work is needed to achieve a good exit.
In particular, it will take time to:
1. Fully prepare for your business exit.
2. Actually sell your business.
3. Get completely clear of your business – purchasers will often require you to continue working in the business under a performance earn-out.
Adding up these stages, as shown in the diagram below, you could be looking at ﬁve to six years or more before you’re completely clear.
Based on The Exit Timer developed by Built to Sell Inc.
It’s therefore important to make the decision to exit while you’re at the top of your game, not when you’re already exhausted!
Truth #4: Your business might not be as valuable as you think
You receive two types of ﬁnancial return from your business: what you make while running it, and what you get paid when you sell it.
From my experience, most business owners focus more on what they make from running their business than its potential value on exit. As a result, few have a feel for what their business is really worth.
You only sell your business once, so it’s critical to get a good understanding of its value now and what you can do to maximize that value to potential buyers.
Truth #5: The world has changed
The world in which many business owners try to sell their business will be very different to the world in which they started it.
Over the past 20 or more years, national and international companies have made it almost impossible for private and family businesses to compete in many industry sectors. Foreign goods are widely available and online shopping continues to grow rapidly. In addition, service industries such as medical, dental and optometry are rapidly being corporatized.
As a result, the opportunities for business owners to achieve good exits in many sectors are rapidly declining.
Truth #6: The kids won’t be taking over the family business
Some of the world’s most outstanding businesses are classic family dynasties, but children are now much less likely to take over the family business.
Younger generations have a far more adventurous approach to life, work and business and taking over the family business is now often a far less attractive option. In many cases, they are more likely to want to set up their own business.
Truth #7: The baby boomers are unleashing a business exit tsunami
Most private businesses are currently owned by baby boomers; who are rapidly heading towards retirement. As a result, there is growing number of business owners trying to sell their businesses within a relatively short time frame.
I have covered the implications of the baby boomer business exit tsunami in a previous post. They are disturbing and include:
1. Sale prices for businesses in many industry sectors will fall, and in some sectors it will become increasingly difﬁcult to sell at all.
2. As a result, many baby boomers will decide to run their businesses for much longer than planned. This will often lead to their businesses declining further in value as their energy levels wane and they become more risk averse.
Dealing with the uncomfortable truths
The “uncomfortable truths” can be confronting and disheartening. However, business has always been tough and it’s no different today.
I believe it’s far better for business owners to develop a good understanding of the “uncomfortable truths” and then acquire the knowledge, insights and tools to deal with them effectively. That way, you are much better placed to properly plan for, and achieve, a successful business exit.
If you would like to better understand what to do next and how to make your business more sellable, come and join our next Freedom Workshop in Melbourne on Tuesday 28 March.