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It makes sense: the best time to sell your business is when you’re doing well. But too often business owners miss that window. Maybe growth plateaus, then drops, and business value plummets. If this is the case, it could be a sign the owner has held on too long.
Business owners are the ultimate problem solvers and have a history of turning problems into opportunities for the business. When business either plateaus or drops, they view that as just another opportunity or challenge to overcome. In reality, they may be missing the fact that they could be the problem—and the consequences of that misdiagnosis can be severe.
Ultimately, when you first start out, you have everything to lose and are focused on making a go of things. You are willing to take a huge amount of risk to build a company and prove your worth. As years go by, you have achieved success and it’s time to enjoy the fruits of your labor. You then strive for a more balanced lifestyle and take your eye off the ball—and your passion for growth and the risk has waned. You strive to hang onto what you have and most of that is usually tied up in your business.
Many owners also become worn down by the stresses of dealing with recurrent issues, such as safety issues, problems with customers and suppliers, and issues with employees.
Once you become tired, it can be difficult to keep up with changes in technology or in the market. But the world moves a lot faster now and you need to be up on it, because most businesses aren't just locally, but internationally, and you better believe many of your hungrier competitors are paying attention to these changes. If you can’t compete as effectively as you used to, that’s going to affect your bottom line and the value of the business.
Why Hang On?Business owners hang on too long for many reasons. Some enjoy what they’re doing but, for most, there are other factors at play. Their sense of identity may be tied to the business or they might not know what they would do if they weren’t running the company every day. Some stay because they believe they are the only ones who can do the job and their employees are counting on them.
Or perhaps, you're hopeful that your children will take over - but it's important to be prepared for that not happening. The concept of the family business is waning, as more and more would-be second generation owners are simply interested in the money from a potential sale of a business to help them pursue their own dreams. Without a proper succession planning process in place to find out where your family members stand, you may be in for a costly surprise - like a child that is unwilling or ill-equipped to take over.
Get Moving - Now Remedying the situation starts with acknowledging that the business isn’t doing as well as it did in the past and you just don’t have the desire to dive back in and get things going again. That should be your signal that’s it time—past time really, but it’s never too late—to plan your exit. Your options may already be limited compared to what they would have been a few years earlier, but waiting any longer will only limit them more.
Remember: If you’re holding onto leadership, running the business without transferring responsibility, contacts and knowledge to others, the value of the company exists because you’re in the company. If you don’t act now to start transferring that knowledge, people will pay less for the goodwill that exists in the company because it resides with the owner. Or purchasers will expect the owner to stay with the company longer than the owner may intend to in order to get the value they want out of the company.
If you haven’t been getting your business valued every couple of years, now is the time to get a valuation done. That will tell you immediately what your business is worth. Done properly, a valuation will also tell you what is increasing your business’ value and what is hurting it.
Of course, knowing the value drivers and detractors in your business is one thing; you also have to act on them if the current value isn’t what you need for retirement. Taking action can be difficult if you have lost your passion and have other priorities, but there are options. These include hiring a general manager or working with a private equity group interested in investing in and growing the business.
What you choose will depend on where the business is today and your own goals. That information can be obtained by using a tool like MNP’s ExitSMART™, which gives you a simple way to plan and implement the transition or sale of your business while helping you maximize value and ensure your objectives and retirement needs are met.
The average lifespan of a business is 75 to 100 years; the average lifespan of ownership isn’t nearly as long. If you’re reaching the end of your lifespan as an owner, or if you want to prevent your business from declining, it’s critical to take action. Planning now could make the difference between closing your doors and watching your company flourish for decades to come.
To learn more about exiting your business and retaining business value, contact Patrick Khouzam, MNP Corporate Finance, at 514.228.7874 or [email protected], or your local MNP Corporate Finance Advisor.
Related Topics:Retirement; ExitSMART™; Valuations; Selling a Business
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