Is Your Business Ready for Sale?

First in a Series on This Important Question

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Is Your Business Ready for Sale? is one of the most pressing question facing business owners today.   And the question is important for advisers to businesses, since we are instrumental in asking hard questions and, indeed, have the responsibility for asking hard questions of our private company clients.

At the outset of a new series of posts, let me say categorically, I am not, not, not suggesting that your business should be up for sale. Bear with me while we focus on the actual question of Is Your Business Ready for Sale?

I began asking the question, Is Your Business Ready for Sale? in the early 1990s, and wrote a booklet with that title and gave a number of speeches using the booklet as a handout.  By the mid-2000s, I realized that business owners may not be ready to ask the question in the absence of conversations about ownership and management transitions that will inevitably occur.  I wrote books about buy-sell agreements because I saw so many problems with these critical ownership transition documents.

I wrote a booklet titled The One Percent Solution to address the topic of managing wealth created by private companies.  And recently, I wrote Unlocking Private Company Wealthwhich is a book that addresses managing private company wealth, provides tools and strategies for managing private company wealth, and provides critical perspectives for business owners and advisers re managing private company wealth.

With the perspective provided by my recent books regarding ownership and management transition and managing private company wealth, we can now seriously and fully address the question, Is Your Business Ready for Sale?

Baby Boomers Driving Ownership Transitions (and Sales)

The baby boomer generation, of which I’m a member, has been one of the most entrepreneurial generations in the history of our country. During the last 30 years over 5 million businesses with annual revenues ranging from $1 million to $75 million were founded. The owners of most of these businesses are now 50 years old or older and beginning to think about retirement.

Recent studies by PriceWaterhouseCoopers, MassMutual and Marquette University show that one out of two businesses will change hands between 2006 and 2016. This marks acceleration—I’ve used half-life of a generation or a standard ten years to estimate turns previously.

There are 76 million baby boomers, and since 2011, we have been turning 65 at the rate of ten thousand birthdays per day!  Many of these baby boomers are business owners, so you can see the pressure that is building on ownership transition.  I wrote about this looming wave of transitions in The $4 Trillion Opportunity for Business Ownership Transition.

Interim Time Could be Short for Some

In Unlocking Private Company WealthI talk about the time between now, or your current status quo, and then, the consummation of a business owner’s end game for the business, as the interim time.  It is during this interim time that a few critical decisions need to be made and implemented.

If these decisions are made – and implemented – business owners could be dancing at their end games much like professional football players dance in the end zone when touchdowns are made.  Just know that any business owner’s end game is far more important to him or her than any touchdown.  You can visualize interim time, your business end game and the rest of your life.

interim-time

Interim time is the time between now and our business end games when we set ourselves up for the rest of our lives.  For a more developed look at interim time, look at my post Interim Time and Your Business End Game: Preparing for the End of One Thing and the Beginning of the Rest of Your Life.

The thing about baby boomers is that, because of our ages, remaining interim periods may be relatively short.  If a baby boomer’s business is to be ready for sale at the time of his end game, then he had better get started now to be sure it is ready.

For those business owners who intend to sell to a third-party, the clock is ticking.  The question, Is Your Business Ready for Sale? is more urgent than ever because you will be in an increasingly competitive market.  With perhaps one out of every two business owners looking to sell or otherwise transition their businesses over the next decade or so, there could be a glut of businesses for sale.  And if there is no glut, the beauty contests will become more pronounced, and the winners will, as always, be differentiated from the runners’ up.

At the moment, however, there is a great deal of capital chasing businesses that are ready for sale.   Private equity groups, which we will discuss in much greater detail later in this series, have an enormous amount of committed capital in search of a home.  Currently, these groups are competing for quality (i.e., ready for sale) private companies and are bidding prices upward.

The availability of capital may be squeezed given the coming demographic shifts – or it may be augmented – we just don’t know for certain.  We do know that whatever capital is available over the coming years will seek out those businesses that are ready for sale.

If you continue to do only what you’ve been doing, where will you and your business stand during this historic time of unprecedented opportunity to create and, perhaps, to realize value?

You have to begin today to focus on increasing the attractiveness, value, and salability of your business.  And if you are a business adviser, you should be asking your clients the hard question: Is Your Business Ready for Sale? and working to get them the resources they need to answer in the affirmative. And if you, as a business advisor, are in a significant business as many of us are, you might consider some of this discussion personally, as well.

To be continued…

So, until next time, be well!

Chris

Corporate Finance for Private Business

Contact me to discuss your needs in confidence about:

  • Buy-Sell Agreement Pricing
  • Any Other Current Valuation or Transactional Requirements
  • Dividend Policy for Your Closely Held or Family Business
  • Shareholder Liquidity Using Leveraged Share Repurchases or Dividend Recapitalizations
  • Ownership or Management Transition Issues
  • Board Presentations/Discussions re Shareholder Liquidity and Ownership Transition
  • Need a speaker

901.685.2120 | mercerc@mercercapital.com

Books

Ownership Transition Bundle

In the Ownership Transition Bundle, receive both print books of Unlocking Private Company Wealth and Buy-Sell Agreements for Closely Held and Family Business Owners  in addition to complimentary PDF resources of The Buy-Sell Agreement Review Checklist and The Buy-Sell Agreement Checklist for Shareholder Promissory Notes.

Unlocking Private Company Wealth

Written both for business owners and advisers to business owners, Unlocking Private Company Wealth can help you turn your business (or your client’s business) into the liquidity-creating vehicle it needs to be for you (or your client) to become independent of the business and truly free to sell it, stay with it, or transition it to others of your choice.

Buy-Sell Agreements for Closely Held and Family Business Owners

Buy-Sell Agreements for Closely Held and Family Business Owners is your guide for understanding what your agreement says from business and valuation perspectives. The book includes a comprehensive and yet understandable roadmap for business owners and their advisers. It discusses the three major types of buy-sell agreements – fixed price, formula and valuation process agreements.

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