Why 80% of Businesses Don’t Sell

80% of companies listed for sale don’t sell, and 70% of family businesses don’t transfer on to the kids. Let’s talk why.

Let’s start with the first reason. The reality is that in many cases business owners create the perfect conditions that reduce company value. When the business owner starts their business, the rules are simple. Don’t take no for an answer. Do what needs to be done. From day one they are worried about cash flow because that’s their lifeline. As a result, from the very beginning the business owner gets buried solving one problem to another, i.e  putting out fires.

In fact, business owners have been referred to as “firefighters”. But instead, I would like to propose that the business owner may be the “arsonist” because they are so knee deep in mud putting out fires that this keeps them from building real value in their company. This is why more often than not they can’t sell or transfer their companies.

The second reason business owners fail to prepare for their exit is the rapid continual grind of running a company, which can take its toll. Eventually the business owner wakes up with a reaction, and this reaction is the biggest value destroyer of all. This is exit motivation, i.e. your motivation to exit your company. Let’s talk why.

In our research we found that when the business owner gets an exit motivation, they generally fall into one of 2 categories. They are either sprinting away from their business for reasons like boredom, burnout, skill gaps etc., or they are sprinting towards the next chapter of their life for reasons such as retirement or starting a new business.

The point is that for most business owners exit motivation is a reaction to their unique circumstances. And since they are looking to get away from their business or running towards something else, their exit motivation leads to value reduction because they do not have the time or inclination to plan their exit and enhance their business, which takes both time and money.

Let’s talk about the next reason. Not only do business owners not plan ahead very well, they have all kinds of blind spots which wreck their exit and financial plans. For example, these can be around things like their personal financial requirements, company valuation and the related shortfalls in their cash needs, or other items like exit timeline, tax and legal aspects. The reality is that most business owners will spend more time planning a family vacation than they will on preparing for their exit.

So what’s the fix? The trick is to plan ahead. Business owners who actually create a plan tend to be more in control. They choose when they want to exit, and they do so on their terms and timeline. And, they may do so for maximum value, with the least amount of taxes while aligning personal, family, and financial goals with business goals. To maximize value as well as peace of mind, the time to plan starts many years prior to your business being sold. Don’t you think it’s time you started to lay out your exit plan?

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