In my years as a business broker, I have occasionally experienced the sad situation of business owners who waited too long to sell their businesses. These business owners all had different circumstances and situations, but all left their business in less than optimal scenarios.
One of these sellers, we’ll call him Al, established a family business in the 1960’s. Over the decades, he built the business up, raised his family, and became a well-respected businessman and community member.
Throughout most of his time as a business owner, Al worked very hard, put in many hours, expanded his business, and continued to make changes in order remain competitive. As Al got older, he still worked hard, but did not adapt to the changing business climate and competition. He continued to run his business the same as had in the past. While he was doing this, his industry changed, standards changed, technology changed, customer expectations changed, and marketing methods changed. After almost 5 decades of operation, Al lost his drive to create change in his business. He also lost his ability to motivate, or even control, his changing workforce.
In his mid to late sixties, Al did not want to sell his business for the same reasons many long-time business owners are reluctant to sell:
- His business is his life. He would not know what to do if he “retired”.
- He did not have enough money to retire.
As Al continued to operate his business into his seventies, he lost customers to more aggressive and efficient competitors. His sales declined. He was unable to adequately maintain his assets which fell into disrepair. His employees focused more on their own desires rather than the interests of the business. As his business began to lose money, he was forced to invest some savings and increase debt in order to remain in business.
As a result of the declining sales and profitability, Al lost value in his business. In addition, he lost his drive and ambition. Unfortunately, over the years, Al did not diversify his wealth. His business made up almost his entire net worth. This net worth was now deteriorating.
Al recently sold his business at a market price that was well below its value 5-7 years ago. The selling price certainly reflected the economic downturn we have all experienced. It also reflected the deteriorating condition of his assets and his declining customer base, competitive edge, sales, and profitability. The selling price was enough to pay his debts and transfer costs, but did not leave him much money for his future. I was sad leaving the closing knowing that Al worked so hard for so many years and yet had so little to show for it.
Looking back is always easy. Everyone familiar with Al’s situation agrees that he should have sold years ago. Looking ahead is much more difficult. When is the right time for a business owner to sell? For every business owner, the answer is different. However, it is important for owners to seriously evaluate their current situation and start planning for their eventual exit. An owner needs to carefully examine their business operation, their personal financial status and needs, and determine a plan for their future.
Business owners need to look out the windshield, not the rear view mirror. Take proactive steps to:
- Engage professionals to assist you with business valuation, exit planning, and business brokerage
- Develop a plan to exit your business
- Diversify your wealth
- Maintain the condition of your assets
- Recognize your own limitations, capabilities, goals, and needs
- Know the real value of your business
Remember that the goal of owning a business is to give you life!
As you face your future as a business owner, be sure to take the time to plan for your future and be ready to sell when it makes the most sense. Don’t be like Al and wait until it is too late. Retain the assistance of an Exit Planning professional or business broker when it comes time for planning or selling. You have spent years building your business, be sure to engage proficient professionals to help you get the most value for all this work.
CenterPoint Business Advisors assists business owners build the value of their business, plan for an exit from their business, value their business, and broker the sale of their business. O.J. Robinson has been a business owner for over 30 years and is using his experience and expertise to assist other business owners to successfully grow and exit their businesses.
603-505-8980 (direct) 888-988-0999 (ext 103)