Boomers With Businesses...And No Exit Strategy

An exit strategy is an owner’s plan for cashing out of the business he/she worked so hard to develop. All too often the owner is too busy managing the business to develop and implement an exit strategy.

So what will the marketplace look like in 2012, when boomers start to sell their businesses and retire? The data indicates it will be a buyers market with an excess supply of businesses and a limited demand. Why? Because 80% of the companies in the U.S. are privately held and there are 87 million baby boomers who will reach retirement age in 10 years. That’s a lot of business owners wanting to retire. The market will be flooded and buyers will be able to pick and choose.

What will make a business attractive to the limited pool of potential buyers? The same two things that make it attractive today.
1. The buyer must want it; it must be desirable in terms of profit, cash flow, management team and workforce.
2. The buyer must be able to afford it; capital to finance the deal must be available. (Even in today’s rather evenly balanced market, lack of capital is the cause of a high number of failed transactions.)

Experience shows that most of these boomer business owners do not have an exit strategy in place. The unspoken expectation of an owner without an exit strategy is that the business has value and the value will be realized at the time of sale. Early in my career, a friend who was building a construction business told me “The nice thing about owning a business is not the paycheck but the fact that you are building wealth for your retirement.”

Yes, that is true, but ONLY IF YOU CAN SELL IT. Often there is a disappointing gap between what the owner thinks the company is worth (sweat equity value,) what the market says it is worth (market value,) and what the assets are worth (book value.) The time of sale is the worst possible time to seek the value in the business.

In order to avoid disappointment when it comes time to sell the company, smart business owners develop an exit strategy that includes tactics for tapping the value of the company over time, and making themselves obsolete, i.e. building an organization that will perform well without them.

Such a strategy requires time to mature and come to fruition, somewhere on the order of 4 to 6 years. That means boomer business owners need to implement an exit strategy today!

Stay tuned for information on how to develop an exit strategy.