The #1 Reason Your Business Won’t Sell.
Although it’s true that every business can be sold, the unfortunate truth is only 30% actually do sell to a 3rd party. Of those that do sell only 5% receive the value they anticipated from the sale. Why?
For a successful business sale to take place, the business must not be reliant on the current owner(s).
In order to ensure receiving a minimum 80% cash upon closing you’ll need to give up majority ownership. With the transfer of ownership, the buyer must be able to continue the business successfully without you. The more the new owners believe they can continue to run the business without the previous owners, the more valuable the business will be.
To achieve this transition, you need to implement a management succession plan well before the time of exit to be effective. This plan should ensure the business will be able to function efficiently and profitably without the business owner’s involvement and all key decisions and roles can be transitioned and performed.
Policies and procedures, a solid business model, and key employees who do not rely on the existing business owner(s) to perform their regular tasks must be part of your exit plan. Even if you’re transitioning the business to family members or management this critical process must still be followed.
The management succession plan starts with the identification of all key roles and decisions that are made by the business owner and then identifying and training key staff that would be competent and capable of performing these activities. Sometimes, recruitment externally might be required or the role of the business owner may be shared by two or more people. Remember also that you are building a long-term plan, so think about the life cycle of the employee before expensive and exhaustive training, coaching and remuneration is considered.
One of the great outcomes of a good management succession plan is a reduction in stress for the current business owner(s). The better the policies and procedures, the better and clearer the strategic plan, and the better skilled and competent the employees, the easier the business is to run.
Business owners find it hard to let go of the reins.
The “I can do it better than anyone else” syndrome
is typical amongst business owners.
Transferring control to employees can be highly emotional and complicated. It can also lead to immediate issues in profitability if it is not handled correctly. Business owners therefore need to make sure they are recruiting the right people in the team and/or training or coaching them into the roles required to one day survive without the business owner(s). This is better done in a methodically planned manner. This will also lead to a better business and create more time for the business owner.
Often the step of delegation and training management and employees to takeover duties of the owner(s) is missed until just before exit when it’s too late!
In the case of a business owners forced exit (death, divorce, disability, disagreement) from the business, a management succession plan is critical for business continuity and sustainable future profits. If it is not in place, the day-to-day management of the business could be transferred to poorly trained or ill-equipped employees who will drive the value down.
Research indicates that only 46% of business owners have an exit strategy and adequately prepare for the transition of the business (Source: Exit Planning Institute State of Owner Readiness 2013 Report)
Don’t get this part wrong. Poorly prepared business exits rely on luck and a roll of the dice to be successful. The consequences to the owner’s health and family legacy when pride and ego prevent an owner from proper planning can be catastrophic. The owner needs to consider the negative consequences to their family, employees, customers, suppliers and community who are reliant on the success of the business. An effective exit and contingency plan should form the part of every business strategy.