If you’re a business owner, you know that at some point you will have to transition out of your business. The question is, will the business transition to new ownership or will you have to shut your doors?
The latest Market Pulse survey confirmed that roughly 55 percent of M&A deals fail and over half of those crash because of unrealistic seller expectations. Too many business owners believe their company is worth more than the market is willing to pay.
It’s a significant disappointment when you’re finally ready to sell only to find the company you built doesn’t have enough value in the market; no one is willing to pay the price you want.
The Exit Planning Institute did a survey in 2018 and found that only 57 percent of business owners had any kind of valuation on their business and less than 15 percent had a valuation done in the last two years. Yet, business owners routinely tell their financial advisors that 80 to 90 percent of their overall net worth is tied up in the business.
That’s a massive disconnect, and it illustrates just how important it is to get an estimate of value, or some kind of business valuation, on a regular basis.
Here’s the thing: building a profitable business is not necessarily the same thing as building one with the kind of transferrable value someone else wants to pay for. You may spend your entire career growing sales without creating a sustainable, transferrable business someone else wants.
Going without a business valuation would be like sending a child through school without once getting a report card or attending a teacher conference. Sure, you might see how they perform on certain tests, but you don’t get an overall picture of their progress.
Or, think of it like working for a corporation for several years and then sitting down with a financial advisor for the first time, six months before you retire. At that late stage, there’s not much the advisor can do to help you change course. You don’t have time to do any true strategic planning.
Your business value is worth what someone will pay for it. Unfortunately, the value someone is willing to pay for your business may be dramatically different than what you expect, or what you’re banking on for retirement.
Maybe you’re putting off that valuation because you’re too busy, you don’t know where to start, or you think this doesn’t apply to your business. Be sure. You’ve built a good business. Now make sure your plans to exit it are on track.
Take action. Business owners who plan ahead are the ones who have more options and more success. There are a lot of things you can do to build value in your business and make it more salable, but you need time to do them.