To hear business owners tell it, a top goal of selling or transferring their business is to get the full value for it so they can fund retirement. Most also understand that a transition strategy is important for them and their business.
In reality, however, many owners probably won’t be able to sell their businesses when they’re ready, because they’re not taking critical steps toward a transition or toward getting the full value of the enterprise, according to Christopher Snider, president and CEO of the Exit Planning Institute (EPI) .
Snider, whose firm certifies exit planners and provides them with professional development and networking, said recent surveys of business owners by EPI show that many owners have little to no exit planning in place, even though many of them have 80 to 90 percent of their financial assets based in the business itself.
“Owners are woefully unprepared for this event that — for probably two-thirds of the business owners — is likely to occur within the next 10 to 15 years,” Snider said in a recent interview. (Snider has helped lead webinars hosted by Sageworks in recent years.)
EPI estimates that some 4.5 million firms representing more than $10 trillion in business value will transition over the next decade or so, but Snider believes only about 20 percent to 30 percent of businesses that go to market end up selling. This estimate is consistent with BizBuySell ’s most recent national report, which indicated about one of every five listings on the online marketplace for small business sales and purchases had closed a sales transaction in 2016.
Snider said it has been a seller’s market for businesses in the last year or more, but he attributed that trend to unattractive supply rather than to strong demand. «Multiples are historically high, but I think that’s more because the private equity companies and the strategic buyers don’t have a lot of businesses to pick from,” he said. “There’s not enough good quality businesses out there [for sale] for them to buy. »
Indeed, forecasters had expected an enormous transfer of businesses to start happening a decade ago, but baby boomers, who now range in age from 53 to 71, have been holding onto their businesses longer than the previous generation, Snider said. “Baby boomers don’t really want to leave their businesses, and they’re not going to move the business until they really have to, which is probably when they are in their early 70s.”
Unfortunately, many owners also appear to be waiting until late in the game to begin planning for the eventual sale or liquidation of the business. EPI’s recent survey of San Diego area business owners sheds light on the hurdles owners may face selling their businesses when they want, or at the price they want. The survey’s results closely resembled those of an earlier nationwide survey of business owners by EPI, which will release additional regional surveys this year.
