Small Business Owners have often seen it all. If your company is older than ten years, add in the business cycle to the long list of things that compromise “all”.
But here may be something unique that these owners have not seen yet, at least at the level of magnitude that seems to be on the horizon.
Consider this in you are thinking of moving on from your business. There may be an avalanche of business owners attempting to leave or exit their business in the coming years.
- 8,000 people turn 65 every day. This has been going on since at least 2011. This demographic trend will accelerate.
- Over 79% of businesses that have greater than one person employed are owned by someone who is age 53 or older. That is about 4.2 million businesses.
- In addition, almost 7,700 businesses that are owned by private investors (Private Equity Investors) are available for sale at any one time.
- The amount of dry powder – capital – available to buy these companies is in the range of $535 billion. This amount can only buy about 10% of the companies that will be available for sale in the next years.
- Even now, only 20-33% of all businesses offered for sale are actually ever sold. That percentage is probably on the high side.
The economy in total and in its sub-segments does go through cycles. We appear to be ready to enter a selling cycle for smaller (sales less than $30 million) businesses. No one can time this exactly, but the market and demographic forces are all in place.
The avalanche of companies for sale and owners looking to exit their business is only just beginning. To put it simply, there is a lack of available capital ready to buy these businesses.
All this probably means the prices of companies for sale will likely decline. It will be a buyer’s market. In fact, it already is.
So should you, the privately held business owner do? Most business owners do not realize, until it is too late, that they need to plan for the sale of their business.
There are things the business owner can do to get the business ready for sale. Anything done upfront before the need of the transaction becomes all consuming, will make things go easier and result in the seller getting more money.
Some of the reasons we hear about why they can’t plan are: It takes too much time and the owner is too busy. Planning and the issues to be addressed are too complex and unfamiliar. It is too early to worry about planning. Family and employee issues and feelings. And so on. We have heard many reasons.
This is common sense, but the value a buyer has for a business has almost nothing to do with what the seller hopes to get. Rather, it revolves around the buyer’s expectations and needs.
Therefore, the business owner needs to know what can be done to increase the value of the business in the buyer’s eyes. The business needs to be ready to sell from the perspective of how the buyer looks at it.
So, an Exit Plan done early in the process may be the best way to increase the likelihood of a sale and to get the most money from the transaction. Working with a trusted advisor is really the best way to do this.
