3 out of 4 Business Owners Profoundly Regretted Selling their Business 12 Months after the Sale! Here's Why...

Wednesday, June 08, 2016

How would you answer the following three questions?

Do you know the Enterprise Value of your Business?   

Do you know the Net Proceeds that you need to receive from the Sale of your Business to be Financially Secure?

Do you know what you will do after you Sell your Business?

If you answered No to the above questions, you are in the majority of business owners that do not know how to start planning for their eventual transition of the business.  For many business owners, they procrastinate because they are unsure how to get started, believe the process is overly complicated and time consuming, scared, unprepared financially or they haven’t received any help from their advisors.

The following are a few statistics that you may not be aware of:

  • 56% of business owners think they have a good idea of what their business is worth yet only 18% have had a business valuation performed on their business.
  • 70-80% of privately held companies do NOT sell.
  • 83% of business owners have no written succession plan in place.

In the next ten years, 76% of business owners will be seeking to transition their business for a variety of reasons.  Some will look to transfer the business internally to their children, partners, management team or employees.  Others will look to sell the business externally to a strategic or financial buyer or recapitalize the business.

Do you want to be one of the above statistics? Or do you want to successfully sell your business?

There are a number of exit options available to a business owner if their business is ready and marketable. Some of these succession options include:
  • IPO (Initial Public Offering): taking the company public through an IPO.
  • Selling the business to key employee(s) or family members.
  • Selling the business to a strategic buyer. This buyer sees value in your business because it adds to the strategic direction of their company and is willing to pay for the competitive advantage.
  • Selling the business to a financial buyer. This buyer does not see value in your business and will typically not pay more than market value for the business.
  • ESOP (Employee Stock Ownership Plan): implementing an ESOP to give the employees ownership in the company.

But, for the majority of business owners, the above exit options are not available because they have not done any planning and do not have a succession plan in place to transition the business.

To develop a comprehensive succession plan that asks and answers every facet of the business owner’s business, financial and personal questions, takes approximately 12 months to 3-5 years to complete.  This planning gives the business owner time to:

  • Improve the business drivers that increase enterprise value;
  • Engage in financial, estate and tax planning to understand what you will need to receive from the  sale of the business to be secure in the next phase of your life;
  • Develop a personal life plan to gain clarity on life after the sale of the business.

The process begins with a Triggering Event. The Triggering Event consists of a formal assessment of the business, financial and personal factors to determine if the business is ready for sale, which is correlated with a business valuation to understand the base line enterprise value of the business.

Once the Triggering Event is completed, it will identify key business value indicators that reflect improvements are needed.  It also identifies financial factors and personal factors that require further assessment.

Avenue M® Advisors, Inc. is a national boutique company specializing in succession planning and transactional valuations for business owners. Avenue M is a member of the Exit Planning Institute and Melisa Silverman holds the designation, Certified Exit Planning Advisor (CEPA).  

Avenue M helps business owners:

  • Determine the value of their business and what can be done to increase the enterprise value of their business asset so that it can be sold for many millions of dollars.
  • Understand the business factors that drive enterprise value and develop 90 day action plans to improve operational efficiencies, increase revenue and provide strategic growth for the business, financial and personal factors.
  • Manage the succession planning process for the business owner acting as their trusted advisor and coordinating with the core and extended exit planning team, family members and business management teams.
  • Develop a comprehensive succession plan that asks and answers every facet of the business owner's business, financial and personal questions.

Investing in a comprehensive succession plan enables business owners to plan for the eventual transition and do it on their terms and within their timeframe.

In the next ten years, there is a tidal wave of business owners, who will put their businesses on the market, at the same time and flood the market.  Most of these businesses will not be marketable.  Of those that are marketable another portion of them will not make it past the due diligence because the business is not ready for the sale.

Don’t be one of those businesses.  Start planning for your transition now!

To learn more about the Triggering Event, which is comprised of a business valuation correlated with a business, financial and personal assessment performed for your business, please contact Avenue M at 818.758.8457.