I have recently dealt with some fascinating businesses and owners and two in particular have struck a nerve and the heart strings. Both these owners have had businesses for 15+ years, in fact one had owned his business for more than 40 years and he himself is 80 years old.
Lets deal with the 40 year old business first. It is like many businesses that have been built from the ground up and the owner is proud of what he has achieved. Two years ago the business was generating 20% - 25% EBITDA margins after a modest owners salary. There was staff in the business, there was evidence of some systems present and growth in revenue. There was some goodwill.
Then they relocated the business (and refinanced) it, at the same time as the market and the business changed. More price-based competition appeared, some one off costs from the relocation and increased staff costs took its toll on profits, which disappeared.
Fast forward to 2018 and revenue and EBITDA had increased, but not quite to previous levels. In essence the market value of the business was based on asset value. There was a case for some strategic value (an extra 20% - 30% if purchased by the right buyer) but "everything had to go right". There was also an opportunity for an employee to buy the business, which would have been a good solution. But that option also evaporated.
Then a series of events happened that changed everything: the employee found another job, the owner had an accident and ended up in hospital. Any momentum or opportunity to sell at all disappeared. He is now forced into a progressive closure which will see a lot of the asset value evaporate.
Had the owner acted several years ago the outcome would have been very different.
Around the same time I met a business owner who had built a very attractive niche in his field, over a 10 - 15 year period. It is, by all accounts, a successful business. I was discussing exit options with him and his response was: "...I am in it for the long haul - I don't need to consider an exit right now".!!
I can't help but fear that the same mistakes are about to be repeated.
Selling a business (or any other exit strategy) takes time and often should be considered and planned at least 3 - 5 years out. It is also worth considering that building the right type of business with the end in mind can start from day one:
Is your business model going to be profitable enough to get the price you want?
Are there systems and procedures to reduce reliance on the owner?
Has technology been built into the business model to deliver profitable growth?
What exit strategies will give you the best price and other value factors?
How do you position the business to take advantage of this?
We come across these circumstances so often and I always reflect on the what-if:
What if these business owners had acted early? How much more money would be in their bank account if they did? How much better would their lifestyle be if they had taken more time to prepare?
Have you considered your exit strategy and what you can do to prepare your business for sale and get the best price?