Last week we discussed how with the low probability your business will sell, only about 20% of businesses that go to market sell according to the Exit Planning Institute, that the owner is faced with a few options that can be of value. So, if you can’t or don’t want to sell your business, what do you do? Some business owners would be tempted to shutter their business or operate under the belief that a family member will take the business over. There are other options as well but for the business owner, everything starts with the current state of their business. As I wrote last week “The new focus for CEO’s was … on “organic growth was driven by market expansion, increasing revenues, operational improvement, and innovation. “ How does a small to mid-size business change their focus and develop the business in those areas?
My continuing education about business, work, and the workplace recently shared an interesting piece of data with me. That data was only 20% of businesses that go on the market are sold. Further, of those business owners who sold their business, 72% did not know or did not think the sale of the business will impact their lifestyle.
Think about those two points. The average business owner has 80-90% of their personal wealth tied up in their business. About 20% of them can take physical possession of that wealth through a sale while 80% will have to find another way. What should each of these business owners do to improve those outcomes? What can they do to become part of the 20% and equally important, what can be done for the remaining 80%?
It’s a conversation most business owners and their families don’t want to have. The conversation about what happens next with the business. Next as in when the current business owner is no longer working in the business. Next, as in how do we effectively manage that transition to ensure that the investment made in the business provides the best possible return for the business owner.
So what happens next?
If you are a small or mid-size business owner, I have a question for you? What is more important to your business? Is it how many dollars in service product that it sells? Is it your Margin? Or, is it the value of your business? The answer should be yes. But which question(s) depends on what your long-term plans for your business are.
Depending on those plans each of those areas of focus have a different meaning. In some instances they should mean everything; in others, they may mean little. Regardless, all are important. How important, again, depends on your plan for the business.
Not that talk. The talk about you and the business you own. Like it or not, one day you will leave your business. Planning for it is something many are uncomfortable with. Some never do, and that can not only cost them a great deal of money, but it can also cause a great deal of pain for their survivors. Yes, your survivors; I know a business this happened to, a 50-something business owner who one day simply fell over and died. When everything regarding his estate was completed, the family also lost the business. This was all because there was no plan for what happened when the owner no longer worked in the business. That may seem like an extreme, but it happened. I knew the family personally, and the idea of transition planning was something they didn’t want to discuss. They should have.