The US Census Bureau considers baby boomers to be those born between 1946 and 1964 or aged 51 to 69 in today’s currency! Many of these folk own businesses and will want to realize their life’s work over the next 5 years. A remarkable few will achieve their goal. Below I’ve listed 17 reasons why business owners fail to exit. I’ve also listed actions we have taken alongside management teams to change these weaknesses over time.
- Acquirers love a compelling story. They love targets that own a niche. Those that fail to sell, rarely have a profitable niche. Action: Simplify what you do, build a tight story around being remarkable at one thing. Build an effective strategic plan around it and execute it with a passion.Read, “Strategic Plans How To Do Them.”
- Dependency – one customer accounts for more than 25% of your sales, leading to risk aversion. Action: Use the cash flow & prestige from that customer to aggressively build the best sales channel you can.
- Dependency – the business is too dependent on the owner. Second tier management is weak. Buyer is nervous that the company can reach the next level without expensive intervention. Buyers don’t have a warehouse full of spare staff. Action: Read our post “Developing Second tier management.”
- Dependency on legacy products. Product innovation has stopped. Action: Read our post, “Innovation Catalyst.”
- There appears to be limited processes and protocols to scale to the next level. Alignment between departments is weak. Action: Read our post, “How to drive alignment.”
- Staff engagement seems weak. Internal training non-existent. Buyer is not comfortable that staff will hang around. Action: Read our post, “Hyper-Growth – Part 1 The University.”
- Growth has stalled. Lead generation is declining and the sales pipeline is dropping off. Action: Read our post, “How to manage inbound sales leads.”
- Margins are weak relative to the competition. Action: Read our post, “How to avoid destroying margins.”
- Pre-tax profits are too small to justify a meaningful price. Expectations of the seller are totally unrealistic given the size of the company. Action: Consider some small bolt on acquisitions to create scale.
- Business model does not produce sales annuity stream – supporting sustainable earnings growth. Action: Read our post, “Business Models Buyers Love.”
- Timing is poor. Owner waited too long. Action: Talk to advisors who are in the market on a no obligations basis. They will take the meeting.
- Accounting records weak, documentation weak, cash flow forecasting weak. Seller fails due diligence. Action: Conduct a quick & dirty due diligence exercise to uncover weaknesses and actions needed.
- Too many non-core activities confusing the buyer. Action: Focus on your core. Close down or sell off the noise that’s distracting you from being the best at what you do.
- Shareholding structure too complicated. Easier targets to purchase. Action: Review with several tax attorneys to discuss their ideas. Could include simply buying in some shares , all the way to setting up a NEWCO structure and a recapitalization involving private equity.
- IPR, patents, and trademarks are out of date or not well documented. Or the business does not own its technology. Action: Do a quick review with an experienced patent attorney to tighten this up including those activities that are worth seeking patents for.
- Total value of the market is too small to interest acquirers. Action: Consider the long term health of the sector. Can you satisfy your growth objectives? Perhaps a longer term play is the best way to go? A strategic review, using objective outsiders, will validate or change your thinking.
- Losses have undermined your credibility and the acquirer needs to see several more years of profits. Action: Drive to the heart of why losses occurred. Execute the turnaround, deliver one full year of great results and be predicting another great year and then review your options.
Here’s the good news. Given an 18-month to 3-year runway, these are all fixable. The Portfolio Partnership fixes these issues by dropping talented C-Suite executives into your business with know-how, executing our successful playbooks for organic and acquisition led scaling. The next 2 to 5 years presents owners with an unusually attractive time to scale a business; that will attract a premium valuation on exit. Think of it as an options strategy not an exit strategy. You don’t have to sell but it would be nice to have the option.
Extracted from our complimentary Exit Playbook.