Articles

Have You Thought About Selling Your Business Lately?

Rich Hall
Silver Fox Advisor
July 2024

You should…think about it, that is.

It’s estimated that 80% of a business owner’s wealth is in the business. That’s a lot to risk without a plan.

According to Exit Planning Institute:

• 50% of business exits are involuntary caused by events like death, disability, disagreement, divorce, and distress.

• 70% of businesses that are marketed to sell do not sell.

• 80% of businesses that transition to the 2nd generation fail.

Why?

Most business owners do not have a plan to exit their business. They go to market with the business “as is” and learn that what they feel it’s worth may not be close to what a buyer is willing to pay.

Here’s an example:

A business generates $7.5M in revenue and provides a net income of $1M. The owner put it up for sale and had interested buyers. After performing their due diligence, they all walked away. It came down to these factors:

• The business relied too heavily on the owner.

• A high % of the revenue came from a single customer.

• Top salesperson was retiring.

• The owner wanted more than it was worth.

• The business had many discrepancies in the financials.

What could’ve been done in hindsight?

Maximize Value with Exit Planning.

The first phase is to determine your personal goals, the finances required to fulfill them, and your goals for the business. This is followed by an assessment of the business’s attractiveness to the outside market and how ready you and the business are to transition to another owner. Finally, there’s a valuation of the business to determine a range in which it would sell for today.

The assessments help determine where in that range the business would likely sell. If the value exceeds your financial goals, you can proceed toward a transition. If not, you know the areas to work toward to improve the value.

What are some common things that increase value?

• Reducing the dependence on the owner(s).

• Improve leadership capabilities of management.

• Clean up the business’ financials.

• Document systems and processes.

• Diversify customer base and revenue.

• Identify areas of high risk and address.

The typical timeline to prepare for and exit the business is around 3 years. Expect at least one year for the business to sell and two years for the assessment phase followed by the value enhancement initiatives.

What’s the primary takeaway?

Learn what drives value for your business and develop a plan to become a value-based business versus solely focusing on income. In doing so, you’ll fulfill your goals for yourself, your family, and your legacy.

Rich Hall

Certified Exit Planning Advisor | Business Advisor

www.richhallgroup.com