03 Apr Lack of a Proactive Exit Planning Strategy Continues to Plague Small Businesses
According to the most recent Market Pulse Survey by the International Business Brokers Association, retirement continues to lead as the number one reason why most owners decide to sell their business. However, most sellers do not engage in a proactive planning process, this is more evident in the Main Street market which is comprised of businesses with revenues $2M and less.
To get a clear picture of how many sellers were going to market without planning, Pepperdine Private Capital Markets Project (in conjunction with the International Business Brokers Association and M&A Source) analyzed data from its 2018 Q4 Market Pulse survey completed by business intermediaries, M&A advisors, and other business transaction professionals based on their recent deal experiences. Here’s what they found:
In the $5MM- $50MM deal range, 31% of sellers engaged in no exit planning prior to marketing their business for sale.
In the $2MM- $5MM deal range, 26% of sellers engaged in no exit planning prior to marketing their business for sale.
In the $1MM- $2MM deal range, 33% of sellers engaged in no exit planning prior to marketing their business for sale.
In the $500K- $1MM deal range, 58% of sellers engaged in no exit planning prior to marketing their business for sale.
Finally, for deals less than $500K, 80% of sellers engaged in no exit planning prior to marketing their business for sale.
Generally, the smaller the business, the less likely the owners are to do any advance planning prior to listing their business for sale. Of the sellers that plan ahead, most are still moving through the exit planning process at a rapid pace, with less than a year between initial consultation and market listing.
This approach to business sales present a myriad of potential problems when it comes time to sell. With valuation multiples reaching historic premiums, buyers are more thorough than ever during the due diligence phase of the sale. They want to make sure they are purchasing a business that is worth what they’re paying. Unfortunately, if a seller has gone to market without proper exit planning they could be leaving money on the table or even preventing themselves from being able to sell their business at all.
To gain insight on these and other current market conditions, contact Kyle Griffith of The NYBB Group. The NYBB Group can be a resource to help business owners determine the marketability and approximate value of their business.
If you would like to discuss this article or schedule a private and complementary consultation, please contact Kyle at kyle@nybbinc.com or 631-339-0249.
