Study Shows 88% Don’t Have Business Exit Plan Yet See One As Important
When I get that call, things would be simpler if I just accepted the premise and took the listing at any price. Fortunately for everybody, I don’t. Rather, I begin a dialogue with the business owner to discover if the business is ready to be sold and what would constitute an attractive proposition for each type of buyer. In too many cases, it becomes obvious that the price expectations of the seller are unlikely to be met and the business is not, in fact, ready for new ownership. What to do?
In my early years as a business broker, I wondered if my experience was somehow unusual. That’s what lead me to read Barbara Taylor’s post in the NY Times. Written some time ago now but still relevant today, she writes about a Whitehorse Advisors study indicating that the majority of business owners have no plan to find new ownership. The study focused on business owners between the age of 40 and 60 with results that are consistent with my years of experience helping business owners of all ages than have no business exit plan. Here are some of the study’s particulars about the business owners interviewed:
- 88% have no written business exit plan to transfer ownership of their business or their plan is not current.
- Better than half are planning to transfer their business in the next 10 years.
- Better than half are expecting to sell their business to a third party (58% to third parties, 19% to employees, 15% to family, 8% have, apparently, no opinion at all).
- “I am too busy” was the biggest reason for not having a business exit plan.
Waiting to exit may frustrate business owners’ plans and cost money for several reasons. For example, buyers don’t pay full value when they perceive unmitigated risk in a business. A well considered and implemented Business Exit Plan has taken the time to identify the risks faced by a business and has put in place measures to reduce the associated likelihood and impact. Now every one knows that calculated risk is a part of every business. The Business Exit Plan documents those calculations and creates confidence in the mind of a potential buyer. Confidence leads to a full price offer.
Another reason why unprepared business owners may not receive full value for their business without a Business Exit Plan stems from the fact that, starting in 2011 and continuing for 19 years, 10,000 Americans turn 65 every day. This means that there is a good chance that the business for sale market will be flooded with Baby Boomer sellers thereby creating a buyer’s market. Prices fall in a buyer’s market. Thus it becomes even more important to be able to stand out from the crowd in order to attract good buyers. As long as the current statistics hold, only the outstanding businesses have a Business Exit Plan that has been in place for years and has been dutifully and successfully executed.
As a result of all this, many professional advisers are beginning to talk about “Exit Planning” as an essential service needed right now by all business owners. So, what is a Business Exit Plan? There is some disagreement on this point with the answer varying somewhat depending on the type of professional you ask. Let me give you my perspective as someone who actually sells businesses: An Exit Plan prepares you for the next adventure in your life. OK, adventure may sound a little ambitious but why not? Life expectancy is increasing in this country and retirement looks more and more like another career. It’s well known that an active life is a happier and longer life. Shouldn’t you plan and work for your next career as hard as you’ve already worked to build your business?
Planning for the future is not the easy path but it is the right path. Contact me to schedule a meeting so I can begin the relationship needed to assess your readiness, build the team of professionals you will need, then position you and your business to meet your financial and life goals. As a rule of thumb, three to five years in advance of your exit is a good time to start you planning.
Eventually, every business owner either sells their business or closes the doors and walks away with nothing. Pretty easy choice, wouldn’t your agree? However, the existence and currency of your Business Exit Plan may be the subject of a difficult discussion in the future unless you get started planning now. I’d like to help you avoid the pitfalls and then watch you embark on the next fulfilling phase of your life.
RU Ready Now?