Imagine this: your friend just had a baby boy and is showing you photo after photo of the red-faced crying infant as they excitedly tell you how cute he is. You try your best to hide your very loud facial expressions and muster up a compliment for the baby. But you know this baby is not cute, it is an “ugly baby,” and the parents are too close to the “situation” to see that. We have all been in that situation, but no one would actually admit to their friend that their baby is ugly. Everyone thinks their newborn baby is beautiful and every business owner thinks their business is successful.
As a business owner you have spent the majority of your life working on and in your business. You have cared for your employees and your customers, you know your business inside and out, and you think it should be worth top dollar when you go to sell. We hate to be that friend, but your “baby” may be ugly.
You Have Unrealistic Value Expectations
We see from many lower middle market and small business studies that almost 70% of companies put on the market today do not sell. Why do you think that is? You may be thinking, “my business would sell if I put it on the market today, I would be one of the successful 30% of owners that are able to sell their business for a profit.” Maybe you are right, but if statistics show us anything, you are likely not prepared to sell your business in its current state.
Most business owners see the revenue their businesses earn and assume that will transfer to high profits during a business sale. However, just because your business makes money, it does not make it valuable to a buyer. In fact, if the only thing you focus your energy on as an owner is revenue, your business is likely not valuable at all. Scott Snider, Exit Planning Institute President, says, “Business owners don’t understand what drives value and therefore have an unrealistic opinion of it. And I think that is natural.”
For your business to be truly valuable to a potential buyer, you need to have realistic expectations of value. Utilize the Business Attractiveness and Exit Readiness Indexes to determine how attractive your business will be to buyers.
Your “Well Documented Systems” are Actually Sticky Notes in a Trash Bag
We all know someone that has their own “unique filing system.” You know the one. It is just a pile of loose receipts and IOUs in a recycled grocery bag in the bottom of a desk drawer. Good luck trying to sell a company with a grocery bag of finances and processes. No buyer wants to be handed a literal trash bag full of business processes.
Having well organized, defined, and documented processes is one of the most important factors that can positively impact the salability of your business. Having strong Structural Capital, one of the Four Intangible Capitals in a business, allows your business to work efficiently. Structural Capital includes your business processes, documentation, training programs, technology, tools, equipment, and real estate. Chris Snider writes about structural capital in Walking To Destiny. He writes about business processes, “Are these well documented to the point that they are transferable, and someone will want to pay a premium to get them?”
Another way of thinking about this: envision trying to piece together some IKEA furniture without the assembly instructions, three missing bolts, and the wrong size Allen wrench. It will be impossible to complete, and you will likely not make it five minutes into the process without cursing. Don’t put your potential buyers through this and expect great results or a sale.
You Get Cold Feet at the Thought of Leaving Your Business
The reason business owners back out of the sale of their business is because they have spent the better part of their life working on their business. This business is quite literally their “baby” and the thought of giving their baby to someone else is the cause of great stress and regret. No potential buyer seems good enough to purchase and run your business, so you decide to back out before they get the chance.
Exit Planning Institute President, Scott Snider, says, “Business owners likely identify with the company, it’s a part of who they are. They get uneasy about the future and start to regret or question their decision to sell.”
Proper planning for your next act helps to limit some of the stress and regret that can come with selling your business. Your exit plan should include your business, financial, and personal needs. Snider says, “The best place to begin is by pulling exit strategy into the now and not have it be something to think about in the future. We will have owners who understand value and have real and reasonable expectations. We will have owners who aren’t scared to exit. Owners will know who they are in and out of their business and will have personal and personal financial goals. Above all, we will have ready and attractive companies that are positioned for growth and are ready to be transitioned.”
Limit Business Owner Regret
The majority of business owners report great disappointment in their exits. You have worked too hard for too long to fall into this same trend. Now is the time to educate yourself on the myriad of possibilities in front of you and begin adjusting your approach to daily operations immediately. Successful exit planning doesn’t happen overnight. The Certified Exit Planning Advisor program helps you begin creating a game plan for yourself to cash in on the 80% of your net worth tied up in your business. You deserve it.LEARN MORE ABOUT CEPA