Coffee

Time to smell the (American) coffee…?

Speak to any IFA in the UK and, chances are, they’ll tell you that on a weekly basis they meet business owners that list their business as one of their main assets - and usually a fundamental part of their later life financial planning.  You probably won’t be surprised to hear that the business is usually listed in their financial statement at, yes, you guessed it, a nice round £1 million.  Minimum.  Seldom less.  Funny that.

What’s not so funny is the reality those business owners are likely to be confronted with.  The following is an excerpt from an article on the Forbes web site titled “Study Shows Why Many Business Owners Can't Sell When They Want To”;

“Experts estimate that millions of baby boomer entrepreneurs will close or sell their business in the next decade. A 2016 survey of small businesses in the United States indicated that 72% of small business owners don’t have an exit plan and 54% intend to leave in 10 years. We have a succession crisis.”

The article goes on to claim that for many business owners, one of the top goals of business ownership is to sell or transfer the business to fund retirement but that this is extremely unlikely for most as they have no exit plan or strategy in place even though in many cases their business represents “80 to 90% of their financial assets”.

The American Exit Planning Institute quoted in the article goes on to say the following

 “Owners are woefully unprepared for this event that -- for probably two-thirds of the business owners -- is likely to occur within the next 10 to 15 years”

Given the prevalence of business ownership amongst the Baby Boomer generation, and their current age, that 10 to 15 years seems quite a generous estimate.  The worst part, however, is that

“only about 20 percent to 30 percent of businesses that go to market end up selling”.

Strong, healthy businesses with a solid track record, good governance, mature systems and processes, excellent growth prospects and strong teams are very much in demand – and if that describes your business then your personal challenge is more about optimising the value you can get, ensuring the business doesn’t rely on you and preparing yourself and the company for sale.  Strategic buyers and Private Equity are desperate for businesses like yours and they are in very short supply.

Logically then, that doesn’t describe most businesses that come on the market even though their owners are relying on a sale or transfer of ownership to fund their retirement.

So what, if anything, can be concluded from this?

Well firstly, just because the article and these statistics are from the US doesn’t mean they’re not representative of the situation in the UK.  All the evidence we’ve been able to gather suggest they are and that most UK business owners are depending just as much on their business to fund retirement as their American counterparts. The statistics on the percentage of UK businesses that actually sell are similar, if not worse.

Secondly, it suggests that the vast majority of business owners, even of quite decent sized companies, have no idea of the real commercial value of their business or the likelihood of it selling, even though they’re relying on it to fund retirement.  Is that ignorance, or complacency?  Well it’s actually quite understandable; you have a decent (profitable?) business, it funds a good life style – why wouldn’t someone want to buy it from you?  The problem is, you’re not seeing it in the way a prospective buyer would – and are either blind to or ignorant of the issues that will stop it selling.

Finally, if your business is your pension, wouldn’t it be better to take control, plan and do your best to ensure that your company is one of the 20% that will sell whilst you have time to do something about it?  Hope is not a strategy – believe me; I’ve been doing the lottery for long enough to know!

If you’d like help turning hope into reality, click here to arrange a confidential, no obligation chat.


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