Running a business is tough. You know about the importance of exit planning, but you keep putting it on the back burner. It’s something you’ll think about … another day.Many business owners don’t think about the salability of their business until they’re ready to sell. But by that point, it might be too late. Take a few moments and look at why the company you’re building might not be sale-ready. Examples:
You have a great customer. That number one customer of yours isn’t a problem, until they are. We’ve seen many business owners land a lucrative customer early on and continue to grow with that client through the years.The general rule is that your number one customer should account for no more than 15 to 20 percent of your business. We’ve seen businesses where the top customer accounted for 50, 60, even 70 percent of sales.
Unless that customer has a major powerhouse name (and maybe not even then), a business like this isn’t attractive to buyers. It may provide a good income as long as you run it, but will be much harder to sell and will generate a lower sales price than one with good customer diversification.
You’re a genius. You started this company and you’ve done amazing things with it. You’ve doubled sales in the last year. You oversee operations. You quote new work with lighting speed and reliable accuracy, using nothing but your own experience and intuition.
Employees and customers may look at you and say, “Wow!” when they see everything you accomplish in a day. But buyers are going to say, “Wow!” for another reason that’s less than positive.
The business is dependent on you. For you, that’s a significant responsibility and a point of pride. To the buyer, that’s a single point of failure. If a buyer can’t duplicate your results with you not around, your business represents more risk than opportunity.
You don’t want to sell. Maybe you just don’t have plans to sell. Maybe you think your kids or key managers are going to take over. Maybe you love your business and don’t see any reason to leave.
No matter how you intend to exit your business, you should always have a sale as a backup option. Something might happen in your kids’ lives or in your managers’ lives that complicates your plans. If you’ve built a business you can sell, then you can easily shift gears and put it on the market if things get messy.
As for not wanting to sell, that’s a different concern. I talk to too many business owners who have just held on too long. Sales declined, and employees left for better opportunities. Sooner or later you will exit your business. Better to do it when sales are strong and the business still has value in a buyer’s eyes.