A Decade of Change: Is Your Business Ready?
As a business owner, you’ve likely been in conversation with your peers about the prospect of selling your business one day and what it could be worth.
You’ve heard about the different options out there from internal transitions to ESOPs to the full buyout by an outside firm.
Maybe it’s a conversation you’ve been part of, but not one that you’ve spent time thinking about for yourself.
How prepared are you for the future state of your business?
How ready is your business to transfer to a new owner? Regardless of the option that best suits you and your business, you’ll likely need to spend a lot of time seeking out information and guidance on the process.
The Exit Planning Institute recently completed their 2023 National State of Owner Readiness Survey and it’s been a very interesting read for our team.
They surveyed over 1,000 business owners across the country and then compared results to the report they completed a decade ago. The main takeaway is that owners are spending more time and resources looking into what is next for their business.
3 Shifts in Exit Readiness In Business Owners From 2013 to 2023
Owners today are better educated on their exit options
When the initial study was done in 2013, less than 40% of all owners surveyed said that they had an understanding of their exit options. In 2023, that number rose to 70%.
Owners are investing in their education and taking the time to seek out resources and advisers that can help them get a grasp on how to exit.
Just over one-third of all owners surveyed said that exit planning was at the top of their priority list while over two-thirds did say that exit planning is on their priority list. At Doescher Group, we believe an exit strategy should be a top priority for all business owners.
Making exit planning a top priority doesn’t have to mean that you’re exiting your business tomorrow, next month, or even in the next few years.
In our eyes, making your plan for a successful exit from your business is a great way to frame the work you can do to make it more pleasant to run today. As we often tell the owners we meet with, a business that is ready for exit is a business that’s enjoyable for you to run.
Even if exiting the business isn’t part of your plan today, it’s a reality that all owners face at some future point. With that, we think it’s valuable to prioritize that preparation for exit, regardless of when it may actually happen.
2. More owners are seeking out a formal valuation of their business
The Doescher Group Adviser team, pictured left to right: Craig Doescher, President; Ryan Scheidemantel, Client Manager, & Jordan Schwass, Engagement Manager
60% of owners stated that they have sought out a formal valuation in the last 2 years for a variety of reasons. The largest is a valuation for estate planning purposes, followed by tax planning, with valuation for the potential sale of the company being 3rd on the list.
While the Exit Planning Institute (EPI) only saw a 1% increase in the number of owners who want to exit their business in the next 5 years, it’s clear that more current owners are preparing themselves than their counterparts from 2013.
When it comes to the 15% seeking out valuation for the potential sale of the company, we often see owners getting hung up on valuations that they overhear when talking to their fellow owners. However, the world of business acquisitions and sales is nuanced in how values are assessed and how deals ultimately go. Variances in value exist based on the market, industries, or even seemingly similar companies in the same industry.
The best thing about going through the valuation process is the ability to set a baseline of where you are today and plan for the impact you could have on the value over the next 1, 3 or 5 years. At Doescher Group, we offer our clients a limited business valuation through our exit audit process and then team up with them to develop and implement value-accelerating strategies to get where they’re looking to go.
3. Only 1/3 of Owners said a business readiness assessment was part of their written exit plan.
Many of the owners we connect with understand that they may have a business that would be sought after by potential acquirers, but few of them truly know if their business is ready to undergo a transition to new ownership.
This survey showed great improvements for owners over the past decade, but we would say taking those loose plans and yearnings from a theoretical idea into a written actionable framework is currently the biggest area of opportunity for owners.
It’s one thing to have a business that a potential investor would be interested in buying, but it’s another thing entirely to have a business that’s transferable. For example, we may see a valuation, based on the financial performance of a company, that says they’re worth $5 million. However, upon a deeper dive into the practices of the business, it’s clear that they are solely dependent on their owner, which would have a larger impact on their actual value in the market.
How to move from the theoretical value to actual value
As previously mentioned, a business that is ready to sell is more enjoyable for the owner to run.
So think about your business through that lens.
What tasks are on your plate that could be delegated to others?
What elements of your business keep you up at night?
What processes could you implement to improve the flow of your business?
Recommended Read: 3 Ways Systems Make Every Business Owner’s Life Better
If you’ve been asking yourself any (or all) of those questions we’d love to chat with you about ways to remove your business’s reliance on you, the owner, ultimately making it easier to sell and, more importantly, more fun to run.
