When The Business Won't Sell

Surveys by the Exit Planning Institute have shown that many owners have little to no exit planning in place, even though many respondents also said that they have 80-90% of their financial assets in the business.  Further, according to the Exit Planning Institute, about 4.5 million firms, which represent over $10 trillion in business value, will transition over the next 10-15 years.  The coming tidal wave of baby boomer entrepreneurs looking to cash out their businesses or move into retirement has been well-documented.  Yet, experts estimate that only about 20-30% of businesses that go to market end up selling.  Not all businesses are saleable. 

This epidemic is not isolated to any particular industry or any size organization.  Anecdotally, we are already seeing this play out.  A solopreneuer who was depending on the sale of his business to fund retirement now can’t find anyone willing to buy it.  A manufacturing company that built a strong regional and growing national presence has some potential interested buyers, but all at a steep discount from expected value.  A regional environmental services company built a rapidly growing business on unique values and customer service that is antithetical to industry practice, but now those same practices that were foundational to the company’s success diminish the company’s value in the eyes of potential buyers.

When there are no members of the next generation who are willing or able to carry on the business, what options do owners have when the business won’t sell?

1)    Family ownership with professional management.  For some families, developing a strong internal management team and comprehensive governance structures can open the potential for the family retaining long term ownership and oversight of the business with non-family, professional managers running the business on a day to day basis.

2)    Strategic merger or partnership.  If an outright sale of the business is not an option, there may be strategic partnerships or opportunities to merge with another organization that would allow the current owner to step back from the daily grind and reap financial rewards of the company’s future success.

3)    Set up an ESOP.  Employee stock ownership plans are not new, but a number of organizations are again considering whether this type of structure might be a good fit. 

4)    Go back to the starting blocks.  Engage outside experts or industry professionals to advise you on the strengths and weaknesses of your organization and how you can set up your business now to be more marketable in the future.  In other words, though it will take time, begin managing the business for future sale.

This list is not exhaustive, and each option has pros and cons.  Certainly each option takes work.  However, based on the statistics and anecdotal evidence, if your family owns a business and is looking to transition ownership in the next 10-15 years, there is a good chance that your family will need to be thinking outside the box to find the right solution.  In the interim, there are a number of ways to begin managing the business to open up more of those opportunities in the future. 

We would love to tell you more.