Why do 90% of business owners sell their business for much less than they expected?

The statistics are damning in that 90% of owners sell their businesses for much less than they expected then they sold. Why? And more importantly, what did the 10% do that the unsatisfied 90% didn’t?

Research has highlighted that the reason that almost all owners don’t achieve their exit goals is that their businesses were not “sale ready”.

So what does being sale ready mean?

“Preparing your business for what a target purchaser might look for so that the value he will pay matches the value you place on the business.”

Much has been written in the press about the baby boomer generation wanting to sell or transition their business over the next 5-10 years. When you look at the over 1.4 million businesses that this will involve, you can quickly see that we are entering a perfect storm for these business owners. The reality is that only a small number will achieve a result that unlocks sufficient wealth to fund their future life journey.

The following are some interesting statistics on the subject:

• 95% of business owners/organizations that approach a business broker are doing it for short-term emotionally driven reasons. Only 5% are doing as part of a formal exit strategy
• 50% of these business owners/organizations are not Sale Ready
• Of the 50% that are Sale Ready, 90% do not achieve the price they had assumed their business was worth
• The difference in sale price achieved by a Sale Ready business and one that is not can be dramatic due to the willingness of the potential buyer to apply a higher multiplier to a Sale Ready business (Is your business only worth 2X EBIT whereas a Sale Ready Business may be worth 6X EBIT)
• There are 1.54 million businesses in Australia and 1/3 have owners that will be over the age of 55 by 2024
• Over the next 9 years until 2024 it is estimated 1.4 million business owners will seek to retire
• The largest business bank in Australia estimates 2/3rds of its customers will seek to exit in the next ten years.

Unfortunately this perfect storm and under preparedness, generally results in the sale of businesses at a price where the owners are angry and/or disgruntled because they left significant amounts of money on the table. This affects future lifestyle and personal wealth.

It doesn’t have to be that way. Owners can significantly grow the value of their business and therefore their personal wealth on sale or transition out of the business, simply by having their business Sale Ready.

So what does a sale ready business look like?

What do prospective purchasers look for?

A Sale Ready business will have many of the following characteristics:

• Shareholders ready for the transition
• Effective management structure that is not reliant on the owner
• Well-developed systems & procedures
• Effective management information system
• Three years of profitable growth
• Clear Strategic plan
• Clearly identified target purchaser
• May have an X factor

The majority of purchasers are looking for a business which is sale ready as they are lower risk and will pay in accordance with how sale ready they are.

A business doesn’t need all of the listed characteristics to be considered sale ready. However, it does need to exhibit a number of them. The more ticks, the higher the value.

How many ticks did you have?

ProfitHQ has a Sale Ready System to help owners achieve the ultimate reward for being in business, which means to sell the business at significant enterprise profit. This in turn has a significant implication on the personal wealth and hence the funding for the next stage of your life journey.

If you need help applying any of these points in your own business, I’d be only too happy to help. Please call me on (0419) 834 -678 or send me an email at [email protected].