Why planning your business exit is key to the operation's success

SCORE has looked at the situation, and alarm bells are going off. Many business owners have not planned for it, despite that fact that in most cases 80% to 90% of their net worth is tied up in it.

What am I talking about? Selling your business.

Baby boomers aren’t babies anymore. The youngest in this generation are in their early 50s, while the oldest are in the early 70s. According to the nonprofit SCORE, more than 12 million of these boomers own businesses, and they will be sold in the next 10 to 15 years.

The total valuation of these businesses could be in the trillions of dollars. Though difficult to measure and compare, this generational transfer of wealth could be the largest transfer to ever occur.

This is important for Tucson. Our economy is dominated by entrepreneurs and smaller businesses. These are the precise businesses cited by SCORE, and owned by boomers. The total value of these businesses in Tucson is easily in the hundreds of millions.

So what’s the problem? Most business owners have not prepared for it. I know this from my own personal experience of having consulted with small businesses for over 35 years. Validating this thinking are two experts immersed in this wealth transfer — Gary Hirsch and Chuck Sawyer.

Hirsch and Sawyer are long-time entrepreneurs in Tucson. Hirsch was the primary chair for Vistage groups in Tucson for over a dozen years. Sawyer and his wife Kathy are co-owners of Cartridge World, a local business in operation for 20-plus years.

Hirsch and Sawyer are also part of the NAVIX organization. NAVIX is a national consultancy specializing in helping business owners prepare their company for sale.

Sawyer shared an article Todd Michael Cohan, a venture capitalist and private equity investor, wrote for SCORE. Cohan noted the following:

According to various sources, approximately two-thirds of business owners are less than ready to sell within the next 10-15 years …. Only 20 to 30% of those businesses that end up on the market will sell.

Back to homepage

Subscriber Login

Keep reading with a digital access subscription.

Subscribe now

Private equity companies and strategic buyers are looking to buy great deals but are having trouble finding them. There are slim pickings amongst an unattractive supply. While the demand is strong in this seller’s market, the supply just isn’t making the cut.

So, what does this mean for Tucson. It means 60% to 70% of existing business value may not make it to the next generation because of lack of planning. Hirsch and Sawyer strongly recommend that for any business owner, the time to start planning your exit is now.

Hirsch noted that an owner who prepares now for selling their business is preparing their business to be a better and more profitable operation; regardless of whether it sells. There is no downside to preparing your business for sale.

Hirsch and Sawyer focus on some key factors to optimize the value an owner realizes in a sale. They are:

• Transferrable value: business assets that move from one owner to the next, delivering inherent value in the process.
• Owner independence: the company can operate efficiently and effectively, whether the owner is there or not.
• Diversified customers: the company is not dependent on one or a few key customers. No one customer contributes more than 20% of revenue.
• Financial and management tools: the business is systematized with tools and processes in place to facilitate operations and track results.
• Culture: the organization’s culture is positive, engendering loyalty and a team environment.
• Incentives to stay: there are incentives for employees to remain with the company, even in the event of a sale.

Hirsch and Sawyer also emphasize the personal side of the equation. What happens to the owner and their family when the business changes hands? Some owners stay involved in the transition for a period of time. Others hand over the keys and head to the beach.

Owners, with their family, need to figure out what beach, with how much and when. The business gets to the point of being salable at a desired price through planning. The family and personal goals deserve an equal amount of planning, if not more.

Hirsch and Sawyer shared one final point: An owner is only going to sell once. They better do it right.

This is important for Tucson. Tucson businesses leaving money on the table, or not seeing the money at all, is not good for the long-term economic health of the region.