The Uncomfortable Truths in Business Exits

After years of building and growing your business, many people hope to see a reward at the end of it all. After all, it’s been years of that hard work and heartache that comes with running and owning your own business.

We’ve been advising many businesses over our 30 years, and our main observation is that most business owners aren’t ready for their business exit. 

Something that all of these businesses have in common is that they’re way too dependent on one key person… You. 

A good test of this is to ask yourself what happened last time you took a holiday. Were you on the phone to the office every day? Could you really relax, confident knowing that your team had your back?

Business owners in this position usually aren’t totally sure of what the business is worth, but they might have a ballpark figure in their heads. 

Unfortunately, this figure is usually more of a goal and not necessarily what the market is willing to pay. 

The world has changed, and as a result, opportunities for business owners to make good business exits are declining across a range of industries.

Think of video rental stores and newsagents as an example. They may have had an amazing business that was worth trying to sell in the past. But now, we’re in the midst of a digital disruption, and the nature of so many different business models has now changed.

The kids probably won’t be taking over the family business. There will be a virtual tsunami of baby boomers trying to sell their businesses over the next 10 to 15 years. It may even become a buyers’ market and not a sellers’ market.

Do you understand your current exit options for your business?

So, you’re worried that maybe your business isn’t in the best position to sell. What should you do?

Here are the main choices available to SME business owners looking to exit their businesses. We’ve organised these from the lowest return to the highest.

  1. Close the doors. Assuming you are not insolvent, this would involve an orderly liquidation of the business assets and the payout of any debt and employees.
  2. Sale or transfer to the business owner’s family.
  3. Sale to the remaining shareholders or management team.
  4. Walk in and walk out sale to an independent buyer.
  5. Trade sale to a larger business or competitor.

When to plan for your business exit

So, when should you start planning for your exit? And what if you don’t plan to exit?

Yes, we have a few clients who tell us that they will be carried out in a box. And that’s fine! But there is still the question of what your family will do with the business after your demise. 

In our experience, you need to start planning for a business exit at least three years out. Anything less than this, and you risk not realising the business’s full potential.

If the business cannot operate without your presence, this is the first issue you will need to address. It’s time to put systems in place and create a plan to find the right people — it can take time.

If there is a large gap between what you think your business is worth and what the market (assuming there is a market) is willing to pay, how are you going to close this gap

As Michael Gerber says, “It’s about working on your business, not in it.”

Ready to start talking about your business exit? Talk to an expert today.