Around the Web: A Week in Summary
A recent blog post from Business Enterprise Institute, Inc. entitled “What are Business Owners Thinking and Doing About Their Exits?” discusses the reasons many business owners aren’t preparing for exit, and what advisors can do to help steer them in the right direction.
The vast majority of current business owners feel as though they don’t have the time to create an exit plan or that it is not an urgent matter compared to their other priorities. However, just about the same number of owners feels as though they would like to exit their business someday. As a business advisor, it is imperative to guide business owners towards planning their exit in advance, even if it’s not something they plan to do in the near future. Doing so can be difficult sometimes, but these three main points can help motivate business owners to make time for exit planning:
- Part of the exit planning process is building the business’s value. What business owner doesn’t have time to build the value of their business?
- Many businesses are dependent on the owner to run, which is a high-risk strategy. Planning for alternative ways for the business to run if the owner were to leave (either voluntarily or not) is both a step in the exit process and a valuable way to protect the business.
- When you put processes, management and systems in place to make the company less dependent upon the owner, it can free up much of the owner’s time. In this way exit planning can actually make more time for them.
A recent article from Divestopedia entitled “The Myth of Fair Business Valuation: What Professional Valuations Don’t Tell You” explains the major misconceptions many business owners have when it comes to valuations and how the final sale price can vary from the valuation value.
The valuation of a business is based on many factors and can be a long, expensive report. Unfortunately for business owners, a portion of this report is dependent upon subjective information. For example, there is no way to definitively determine the future profitability of a business, it can only be estimated. Similarly, there is no fair value for illiquid assets, it’s entirely dependent upon the market and interested buyers. For these reasons, it’s not uncommon in middle market deals to have a 20-40% difference between the actual sale price and the valuation.
For the best possible outcome, a business owner should work with an M&A team, plan early and never sell in desperation.
A recent blog post from Allan Taylor Mergers & Acquisitions entitled “Selling Your Business? 3 Reasons Why Your Employees Will Be Thrilled” explains why the fear that many business owners feel around informing their employees of a sale may not be necessary. In some cases, an employee of a business that is being sold experiences the fear of being laid off by a new owner, while the buyer faces the fear of employees leaving and having to hire during a vulnerable time for the business.
For the individual(s) selling the business, this can therefore be a tricky issue to navigate. However, these three reasons that an employee would actually be excited by a change in owners should quell some of those fears:
- Job security – When a new owner takes over a business, they are often looking to the seasoned staff for assistance and dependability while they learn the ropes. This means that for at least the first year after a sale, an employee has the opportunity to display their value within the company all over again and that it’s unlikely that the new owner will make any major changes.
- Opportunities for career advancement – This holds true especially if the buyer of the company is a larger company that is acquiring the business and if the new owner has plans for expansion of the business.
- New Growth, Energy and Ideas- There is nothing better than a fresh pair of eyes to see and create opportunities that weren’t there before. Employees are going to love the chance to change things up, see growth within the company and potentially their careers.