Numbers, Business Loans and Succession Plans…
Numbers. They often tell a story, but sometimes you have to dig a bit to figure out what that story is.
Over 500, 55 or more, and 80% were the three numbers a local bank executive shared during a recent round table discussion, regarding business loans at one of their bank’s branches. What is notable about these numbers and why should their bank be concerned? More importantly, why should you, as a business owner be concerned?
These numbers are tied to the approaching tidal wave of baby boomers that currently own businesses and will likely be putting out a “For Sale” sign in the next 10 years. In fact, some experts have estimated ten trillion dollars’ worth of business will change hands by 2025. That’s a lot of business!
An even more alarming statistic is that currently only 20% of all businesses under $10 Million in revenue ever actually sell as a business. The vast majority of businesses end up just dissolving or liquidating for pennies on the dollar. Instead of selling as a business, they have an asset sale. The ownership group is left with a fraction of what their business was worth. Why is that? And how can we change it?
There was a clue to the answer in those first three numbers….
Those numbers were a snapshot of business related loans that had originated out of one of their bank branches.
- There were over 500 loans.
- Secured by individuals who were 55 or older.
- 80% of them reported they had not started any exit/succession planning of their business.
Do you see the interesting correlation…nationally only 20% of all businesses under $10M sell and locally only 20% of the 500 (55 yr or older) business owners have started exit/succession planning. Talk about a blaring message! Which side of that do you want to be on? Yet, the mindset of most business owners regardless of their age, is to spend the bulk of their time in the business, there is always tomorrow for that other stuff.
But what happens to your business if something happens to you? What happens to your family? Your employees? Your customers? You have put a lot of work into building your company, isn’t it worthwhile to take some steps to maximize its value? Not only for you, but for everyone who has ties to your business?
If 80% haven’t formally done any exit/succession planning, imagine the leverage it gives those 20% who have? On a personal level what does it do for their peace of mind? Look at how much more they have increased their chances of selling their business vs. liquidating it should they decide to (or need to)? Think about from the buyer’s perspective, if you were buying a business and two similar businesses were available to you, which one would you want to invest in?
Where to start?
Start by reaching out to a trusted advisor, someone who has your best interest at heart. There are lots of moving parts in developing an exit/succession plan, but it doesn’t have to be complicated. It just needs to be done and the best place to start is to simply commit to doing it.
As a business owner, make a commitment that you won’t be one of those businesses (in the majority) that don’t have a plan in place. Committing to a simple planning process will significantly raise your chances of one day being able to actually sell or transition your business successfully verses having an asset liquidation sale. And even more than that, it will add substantial value to your company, whether you intend to sell soon or not. Please feel free to share your thoughts in the space below.
Chris Steinlage Kansas City Business Coach