Private Business Owners, & Monetizing Business Value, When Exiting

The economy is apparently emerging from recession-good news for all, hopefully to include those who need jobs. However, there’s one group of people for whom the hard work, introspection and self-examination about their future cannot and should not be over: private business owners, especially those running small businesses.

Most small business owners are running hard to meet day-to-day obligations, serve customers, make payroll, hire the next employee, file the taxes. The economic downturn for many has taken substantial income out of their pockets.
For too many owners, the urgent reality of “today’s market” overshadows the far more dramatically important: the looming and critical decisions about how they plan for their exit from their business-and how they package the business to enable this exit, at the time of their choosing, with the economic nest-egg they need.

I recently spoke with a group of about 20 private business owners, running retail service businesses, for whom this issue was front-and-center. They are “subject matter experts”, technically adept in their fields, most in business for more than a decade, some for several. Many of their businesses gross $1-5MM annually. Like many, they’re working hard to make ends meet these days.

Over the last 10 years, a fragmented set of studies paints a potentially worrying picture for business owners like these. While the data are a little sketchy, enough “data points” exist for the direction to be clear (these data sourced from entrepreneur.com; for more information, you might want to review these sources provided by some small-business experts: http://bit.ly/SmallBusStats ):

  • 45%: proportion of small-medium sized business people who say their biggest regret was starting to save too late for retirement. Harris Interactive, September 2006
  • 30%: proportion of self-employed business owners who say they have no retirement savings. National Association of Self-Employed, January 2006
  • 30%+: percentage of private business owners who’ve done NO exit planning.
  • In a related topic, Inc. Magazine cites a 2005 PricewaterhouseCoopers study of 364 CEOs of privately-held companies:
    • 65% of the respondents said they planned to leave their company within 10 years.
    • 51% thought they would leave via a sale to another company.
    • 43% of the respondents said they had done little or no succession planning.
  • #1 reason why private businesses don’t sell: lack of planning by the seller. PriceWaterhouseCoopers study

These statistics worrying enough-but here’s a final one to sharpen the point-this one courtesy of Rick Taft:

  • 25%: estimated proportion of small businesses for sale, that actually sell.

Most private business owners, especially in smaller companies, are “fully invested” in their businesses-and yes, that means that “in the business” is likely where they’ve put “investment” that might have funded retirement. Most must be banking on “good luck” at that moment of successful sale-but apparently many haven’t begun to imagine what’s required in order to get there, quite yet.

As a small-business owner-how are you thinking about your exit? How are you positioned to manage your transition?

We’ve assembled a high-level questionnaire to touch on the key areas related to preparation and “packaging” of a private business for sale (here). These questions don’t assume that every owner wants to sell-but do assume that every owner seeks as much value as possible from what he/ she has created.

We welcome your feedback, comments, thoughts-and want to hear your experiences.