Hard Truths About Selling Your Business
July 20, 2016 in Selling a Business
Bottom line: business owners today do not plan for exiting their business.
It’s a perpetual blind spot in our entrepreneurial world. Business owners don’t want to know the truth about selling their business. Much like retirement planning, it feels just far enough that it can be pushed off until later.
This lack of planning, however, doesn’t seem to limit ideas of grandeur about exiting the business. Countless owners see their corporation as a means to a cushy retirement following a flush sale.
Eventually, however, the day comes when the owner is ready to get out. By this time, the hard realities of failing to plan for their exit catch up.
Then they call me in, the emergency medic on the battlefield of business.
I diagnose their ability to sell their business, fund their retirement, or achieve other business related goals. Much like the patient ignoring their health, failure to plan the business exit results in a dismal prognosis.
Here are several of the hard truths I deliver from the operating room of the business world.
Truth #1: Most Businesses Don’t Sell
The vast majority of owners indicate they plan to sell their business. In stark comparison, less than 20% of businesses actually sell. If the net profit falls below $1 million annually, that number dwindles farther.
Truth #2: The Health of the Business is Subpar
By the time owners reach out to my team at Exit Consulting Group, the business is in the late stages of life. Cash has been sucked out, keeping just enough around to keep the heart pumping. Investments into equipment, personnel, or updating processes took the back burner years ago.
The mentality of “it’s good enough” or “it’s always worked in the past” stagnated any option for vitality, leaving the business limping along.
Truth #3: Current Expectations are Unrealistic
Despite the obvious failing health of the business, many owners remain unrealistically stubborn that the business will sell for far beyond its market value. In their eyes, the worth is built upon the years they invested into growing it, completely ignoring the state it is in now.
Their time, sweat, and toil have no merit in the market. Point blank, the business can only sell for what a new buyer will pay for it.
Truth #4: Things Need to Change
With deteriorating health, the business must be turned around before it can successfully debut on the market. No buyer will purchase a subpar product at a premium rate with the hopes of capitalizing on potential. Buyers want to eliminate as much risk from their investment as possible. That means the business needs to be sound.
The business goes on the operating table.
Business processes get overhauled. New technology investments are made. Mediocre employees are fired. Metrics coupled with accountability become widespread throughout the business. Deliverables and timetables are established. The culture will need to adopt a sense of pride in their work and willingness to celebrate results.
Truth #5: The Market Has to Be Ready
You can’t sell a business without a buyer. In the aftermath of the 2008 recession, buyers were scarce. Banks weren’t lending money for business purchases. Business owners had to hold out to list their business until the market recovered.
While current market trends aren’t as dire as they were then, the market still has cycles. Owners need to sell at the right time for the business, not when it’s the best time for them. Business owners who decided to wait one more year in 2007 were left hanging for several more years to come.
Falling on Deaf Ears
The reality is that most business owners don’t want to hear this. They come to Exit Consulting Group with the expectation that we will validate their unrealistic expectations, commend them on the health of the business, and acquire a large sale price for the business.
It doesn’t happen like that.
Without real planning for the sale, failure is much more realistic than success. Instead, rather than making a glamorous debut on the market, business without a three to five-year plan head to the operating table. We work to salvage what we can, striving to achieve the owner’s goals, which typically which hinge on retirement.
Take a Different Route
The hardest truth of the matter is that this didn’t have to be the reality for many of the businesses. Strategic planning coupled with implementing a long-term plan designed to increase the value of the business could have painted a very different ending for many of our owners.
For business owners nearing retirement or who know that down the line they want to sell their business, they need to start implementing steps to get there today. At Exit Consulting Group, we work with successful businesses to develop and implement exit strategies. This includes all types of exits, ranging from the sale of a business to developing family succession plans.
There’s a caveat – and a note to business owners:
If you honestly believe that you can wake up tomorrow, decide to sell your business, and be greeted with an entire entourage of buyers clambering for your business, don’t call Exit Consulting Group. You won’t like the answer you are going to get.
For business owners serious about taking their business to market, willing to implement the changes to make the most of the sale, contact us today. Together we can design and execute the most successful exit possible.