Why Your Business Will Never Sell

When it comes to retiring as a business owner, there is one statistic that may shock you. According to the Exit Planning Institute (EPI), 80% of businesses that gross under fifty million dollars in revenue will never sell. While this is an alarming statistic. It doesn’t have to be a reality for your business. Today I’m going to tell you why your business will never sell and what you can do about it!

So of the six million total businesses in the U.S. right now, 5.6 million of them are small businesses. Couple that with the statistic above and you may think things aren’t looking too bright for your retirement from your business as an owner. While there are a plethora of reasons why a business doesn’t sell, I’m going to give you three that could boost your chances of exiting in style when the time is right.

1. Baby boomers do not want to exit at their current age. They are sacred. Their identity is in their business. They feel trapped. They feel they haven’t saved enough. The economy scares the crap out of them and they have no inclination about what is next. All these things culminate in not wanting to exit. However, the biggest problem is they don’t really know their options when it comes to exiting. They have friends, peers, or colleagues that tried to sell and ended up having bad experiences. When this mentality of fear persists, 80% of these businesses just wither away. That’s where a Certified Exit Planning Advisor (CEPA) comes into play. CEPAs are there to help you plan for what’s next The key is starting now. If your business just disappears think about the employees relying on you for their job. It’s disheartening to know they won’t get the proper value for their business if the proper strategy isn’t utilized.
2. Fifty percent of exits are not voluntarily. The Exit Planning Institute gives us five Ds which affect business owners and cause involuntary exit:
   • • Death—People die and their businesses just “evaporate”.
     • Disablity— Owners can no longer perform and accomplish the necessary tasks to run their business. So, if a transition occurs, it’s typically not at a profitable or maximized value.
     • Divorce— When a divorce takes place, the divorce attorneys are really smart about getting the value of the business for both parties involved. So, divorces cause an involuntary exit.
     • Distress—At times, life just happens or business just happens. At any given moment a business may find itself in a situation where political or economic events cause disruption.
     • Disagreements—This encompasses legal issues between partners, clients, customers, employees, and owners. Again this often means an involuntary exit. If someone is sued, it could mean the business has to file bankruptcy and they may never reap the benefits they’d hoped for from their business.
3.  Business owners leave money on the table because they only focus on the income. They aren’t focused on the “enterprise value”, a quote from the Exit Planning Institute. Their goal is basically income. While that may seem like a no-brainer, it won’t give you what you want for your business in the end. This is when a business owner is just focused on driving as much money into his pocket as possible. Too often, they forget that the value of the business is what really drives the sale price. It’s not surprising that people focus on income for obvious reasons. However, if you’re building a business to sell, a buyer is not going to pay a premium dollar for a business with little revenue. They’re looking for a business that is more sustainable in nature. They want to see that the previous owner reinvested back into the business.

So, what is the solution to this conundrum? An exit plan. It requires you to incorporate a strategy that allows you to maximizes the business. You also need to make your business transferable. Structure the business to accommodate the new buyer’s ideologies, systems, methodology and thought processes. There you have it, at least three challenges to overcome if you ever plan to sell your business. Contact me if you want to work on a specific exit plan for your situation.

In the meantime, visit our series on Building a Sellable Business growth series of articles designed to walk you through all aspects of planning to sell your business.