I hear that frequently. Good for you if your business brings you satisfaction and a level of income that you are comfortable with. Nevertheless, there will come a day when you will exit your business, which preferably will be on your terms and in accordance with a carefully constructed exit plan.
That won’t be the case for most business owners though.
There are presently over 22 million businesses in the United States, of which the U.S. Chamber of Commerce estimates that only 20% will transfer successfully to a new owner. That is one business out of five. Why so few? According to John M. Leonetti in Exiting Your Business, Protecting Your Wealth, the answer is several fold, including:
• Owners are too involved in the business for them to transition successfully
• Keeping family and key employees in the business is more important to owners than selling to an outsider.
• Buyers in the industry cannot achieve financing.
• A poor economy is reversing the trend of company profitability
• Inappropriate or unreasonable price expectation of sellers.
So it is a given that you will need to exit your business at some point in time. What is the right time, assuming that you as a business owner are now open to the consideration of a transaction? The answer is when the market will pay you the price you want for your business. The problem is that you don’t know when the planets will align (economic conditions, the identification of interested prospects, etc.) sufficient to achieve that target price. The key then is to be ready when that day comes. When might that day come? It might be more predictable than you think. A study by Robert T. Slee, Private Capital Markets: Valuation, Capitalization, and Transfer of Private Business Interests revealed that over the last 30 years, the middle of the decade is usually the best time to sell:
There is no guaranty that this trend will continue. However, it does underscore the need to be ready when the window period of time for a successful exit arises. You may only get one shot, so being prepared is of utmost importance.
Also consider that many successful business owners’ net worth is comprised almost entirely of the value of their closely-held business. Simple wealth management suggests diversification in a portfolio, so why would the value of a closely-held business be any different? David Ryan of the mergers and acquisitions advisory firm Upton Financial Group, Inc. puts it this way, “When you have your net worth wrapped up in a business, you have all of your eggs in one basket. If that business gets into trouble, your net worth can decline precipitously or, in some cases, be wiped out.”
That leads to the possibility of selling part of your business or “taking something off the table.” That can be accomplished through a tax advantaged sale to an Employee Stock Ownership Program (“ESOP”), partial sale to a private equity group, or a management buy-out (“MBO”). All of these options, as well as an outright sale, have benefits as well as pitfalls. Only a comprehensive exit strategy will identify which of these options is best for you.
You will most likely realize the best value for your business only if you engage in a long-term exit strategy designed by professionals that specialize in Finding the Exit™