Disastrous News!

It seems about a third of small business owners are planning to exit their business by selling up. That in itself is not a bad thing. But selling up without having an exit strategy in place?

Yeah….. that’s not a wise thing to do.

Why? Well, because experience says that if you do, you will get anywhere from 25% to 50% less than if you had a plan. That’s a lot. And when you’re considering the hours you put in, the last thing you want is to lose money on any sale.

But to be honest, most businesses are sold without a plan. Vendors do not realise the amount of money left at the table.

There’s more. Baby boomers and early Generation X are retiring, and they were high-risk takers. That means that many of them went into business and will be looking to sell, with most leaving their businesses within the next 10 years. It is estimated that only 20% of baby boomers and Gen X with businesses will still be in business in 10 years’ time and I think that is overstated. Most will get out earlier.

And only a few have a plan.

For some, the plan will be to pass on the baton to the next family generation. Some will sell to someone employed in the business, and others will sell outright.

Here’s the problem. Many who think they will pass the baton to the next generation within the family have not asked the question, ‘Does the next generation of my family actually want to take over the business?’ Many think they do, but the reality is Millennials and Gen Z are not that interested.

Why? Well, they have seen their parents put in consistently 60-hour weeks and they do not want to do that.

It does not end there. Even if you do have a family member willing to take on the mantle, there are plans, timelines and expectations to put in place. The last thing you want is to have a plan to leave it to the next generation but not agree to a process, and it all falls apart.

What about selling the business to a management team or, say, the GM? Again, this is possible but the question remains. Do they want to?

And also, at what price and when? Promising your team or your GM vaguely about something in 10 years’ time is unlikely to get their juices flowing and there are too many variables that can mess it up. They may feel that the value of the business went up because of the time and effort they put in. If you then ask them to pay for that, how will that go down?

So, you need to have the discussion, timelines and a process.

Selling to family and those within a business is less risky for them. They know the business. But selling a stranger who knows nothing about you?

In their minds, that is a lot of risk, and if the risks outweigh the price you are asking, then, generally, they will walk away. Any business trying to sell to a stranger needs to minimise risk as much as they can. And that usually means showing that your business is operating as a business.

And always remember you will value your business much more than anyone else will value your business. That is because you know your business well. But a stranger does not know your business so does not value the business as much as you.

And sometimes, owners of businesses are so preoccupied with the value of the business they tend to ignore taxes. If structured incorrectly, there could be a chance that more taxes are payable when you sell. And again, the level of taxes you pay will be determined how much time you have to prepare and plan for a sale.

Exiting your business is Step 9 of our 9 steps to working less, earning more and creating more wealth. If you would like to know more, email Hitesh@wowadvisors.com.au or Ros at ros@wowadvisors.com.au or call 07 3161 9548.