Addressing the inevitable exit from their business can be chilling for most business owners. Selling the business that you have spent years nurturing and feeding to a third party can be an emotional and trying experience. It is estimated that less than 15% of business owners have developed an exit plan from their business, despite the reality that it is a certain outcome for every business owner. For most owners of closely held companies their business assets account for the majority of their net worth, yet few business owners have a quantifiable value for their business or an understanding of what drives value.
I have recently observed that some business owners are standing on the sidelines waiting for better economic times to plan for or exit their businesses. They seem to believe that better economic times will lead to a higher value for the business when sold. This strategy is worth consideration, but for many business owners it leads to unnecessary delays in their lifestyle plans without any measurable increase in the value of their business at a later time.
In fact, for many, the business value declines during this delay because the business owner has lost interest or energy to keep the business growing and competitive. In the end the business owner can lose several years off of their retirement experience and fail to add any additional value to their net worth.
We have been experiencing variable economic conditions in the last few fiscal quarters which seem certain to continue for the immediate future. Selling your business in what would be considered a weak economic time, however, can produce outstanding results based upon two realities:
Any "down market" is categorized by an increase of inventory (in this case, businesses for sale) and a decrease in the number of buyers looking to buy the inventory. Economics 101 and the theory of supply and demand has taught us this situation creates a buyer’s market characterized by lower prices, longer lead times to sell, and terms more favorable to buyers. In the case of the business for sale market place that is true for all the businesses at the bottom of the value and quality range. The businesses that are properly positioned in the higher value and quality range retain their value in any market conditions.
The correct strategy for many business owners to enhance their wealth upon exiting their business is to improve value and not wait on the side lines for better economic times. In my consulting work with small businesses I find that there are some elements that are common to every business that enhance value when marketing a business. Some are quite easy to implement and amount to the "low lying fruit" that can be picked with little effort or expense. In preparing your business for sale to be considered a QUALITY opportunity for buyers and therefore maximizing value I recommend the following:
|Michael F. Coyle is the Principal at CenterPoint Business Advisors, Inc. with offices in Littleton, NH and Lexington, MA. Michael holds a Certified Business Intermediary (CBI) designation from the International Business Brokers Association, is a member of the New England Business Brokers Association, is a licensed real estate broker in NH, VT and MA, and has earned an MBA from Boston College.|