Exit Strategies – why should I care? Two positive notes to answer that question.

We all agree that one way or another, a business owner will one day leave their business. Many owners do not fully realize the difficulty in selling a business. Most surveys confirm that only about 50% of the businesses for sale under $5 million in revenue actually sell.

You can point the finger at many causes for the high number of businesses for sale that do not sell. Most companies do not take advantage of resources such as businessesforsale.com, and therefore miss out on many willing and able buyers. Other business owners are stubborn, and request onerous terms that do not make sense to any buyer.

But, truth be told the number one cause is the lack of a plan. Selling a business or transitioning a company is much different then selling real-estate, a service, or a product. There are complex issues such as employees transitioning to the new company, customer relationships, proprietary systems, etc.

Studies show that although the vast majority of business owners plan on exiting their business within the next five years, less than 20% have a plan to do that. Business owners have a perception that they there is an efficient market for businesses such as theirs. For the most part they ignore the risk that will be imparted on the next owner, since they are accustomed to business as usual. They underestimate the length of time it will take for them to transition their business.

There are two positive notes to this –

One, many of these characteristics that will make the buyer squirm and diminish the value of your business can be diminished if you have adequate time. And two, diminishing these issues does not just help with the sale of the business, but also with the ongoing success of the business itself.

Business owners should focus on locking up customers and employees long before they think about selling. This can be done through long term contracts and incentives. Business owners that focus on working “on” the business, and less “in” the business will not just make it more appealing to a buyer, but more likely the business will grow. Business owners that organize procedures and models will protect themselves from unforeseen circumstances, and greatly reduce the hassle of transitioning whether to a new owner or to replace an employee.