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.
