Much of the excitement in recent years has centered on the great transfer of wealth that is expected to occur as Baby Boomers retire. There is no denying the demographics: the Pew Research Center reports that 10,000 Boomers will turn 65 every day for the next 19 years. Gads…where are we going to put them all?
Many of these retirees and soon-to-be retirees are, of course, business owners. Some have thought through the business succession options and have taken the necessary steps to ensure a smooth transition. Others have put the decision off until they are ready to address the need. And some are immortal and feel no need to address the issue. Ever.
When we decide that we no longer want to own our homes, we spruce things up a bit then hire someone to sell it for top dollar. We keep tabs on what’s been going on in the neighborhood and have a pretty good feel for what it might sell for. Then there’s that creepy house down the street where the recluse up and died unexpectedly. Boy…that will be tough to sell because nothing’s been done to it.
You already know where this is going.
I’ve had the pleasure of working with a number of business owners over the years and continue to find owners that don’t address business succession until it’s too late. There is a belief that when they are ready they can just sell it, as is, but for an amount comparable to a business that has been managed in such a way that it is very sellable. The Exit Planning Institute, however, predicts that only 20%-30% of businesses that go to market end up selling.
I’m not suggesting that every business owner needs the complete plan on business succession. There are, however, a few things that merit consideration:
Is the business sellable? Sometimes the answer is no because of the current financial performance in which case the owner needs to address the problems and give the business the time necessary to demonstrate a turnaround. Often times, however, the answer is no because of fundamental issues with the business. Maybe the customers are really buying from the owners and no relationship will outlast their departure. Or perhaps the business operates in an industry that’s on the decline because of technological or societal changes. Would you buy a business that only makes plastic straws?
What’s your business worth, really? Just as I know what the house next door sold for, I also know that it had a nicer backyard and a new kitchen. You may know what other businesses sold for or perhaps you’ve seen average multiples for your industry, but how does your company compare? A process like our Value Opportunity Profile not only answers that question, but it also identifies how to increase value by addressing risks in the business.
When would you be ready? Most business owners understand that addressing business succession takes time, but sometimes time doesn’t wait for the business owner. That’s why we have the expression “If you were hit by a bus tomorrow…” Ironically, only 295 people died in bus crashes in 2015. You’re more likely to give birth to conjoined twins. Bottom line--it’s never too early to start to think about succession.
Who might be interested? A family member or employee might be interested, but can they afford to purchase the company? Do you want to finance the purchase? Private equity is not a solution for most privately-held businesses, and strategic buyers are usually looking for scale, technology or talent.
When a company identifies and addresses the risks in its business, it is better able to borrow money for expansion, grow through acquisition or sell at a premium. I wish I could say that every business owner has time to figure all of this out, but that’s not always true. My suggestion is to reach out to us here and begin the conversations. Until then, happy 65th birthday to 10,000 of you.