With Boomers aging and the SME sector continuing to expand, how can Business Owners make educated decisions on whether they BUY, SELL or HOLD/BUILD.
Recent articles in the business press have projected that as many as 12million North American companies are set to change hands from Boomers to GenXers and Millennials in the next decade – at a staggering asset value of over $10Trillion!
Separately, a Securion Financial study in late 2016 reported that while 54% of SME business owners planned to exit within that same 10year period, only 14% actually had an Exit Strategy in place, while another 14% were “working on it”. That leaves 72% with no plan on their horizon.
This table derived from 2017 statistics compiled by Kaiser Foundation (USA) and Statistics Canada and 5year trend projections from the KFF data, show that the Top 12 US States and Canadian Provinces currently account for over 53% of the SMEs across North America. Interestingly Canada’s two largest Provinces – Ontario and Quebec feature prominently- accounting for almost 8% of the total number of SMEs.
In our experience, the core concept behind making a successful exit for most business owners is one of converting the years of hard work, risk and personal sacrifice into hard cash and liquidity. Getting there requires careful thought and planning to ensure that the optimal results are achieved. Reacting to cold calls without prior thought and planning can have devastating effects, since without an objective Exit Readiness assessment and prior independent Valuation, decisions made are often premature and ill advised.
So, how should business owners navigate through these heady strategic waters? When is SELL the right option to choose? We believe the key triggers should be when an owner has lost his or her all-consuming passion for the business – feeling that younger blood is needed to combat the industry turmoil that competitive inroads and disruptive new marketing and technical approaches have created and perhaps when the burden of financial risk and personal guarantees becomes too heavy for the business owner to cope with and health and well-being are affected.
Alternatively, where multiple shareholders are involved, and the original owner(s) want to exit, a succession plan enabling key colleagues may to buy the business out over time and HOLD & BUILD on the company’s financial results, management team and premium marketing reputation to maximize value for an eventual sale.
Equally an objective assessment of the business may clearly indicate that a current flattening out of a company’s growth curve dictates the need to consider a BUY commitment to address competitive gaps, diversify product or service offerings, gain expanded geographic coverage and potentially to enhance bench strength within the management team.
Coming back to the concept of EXIT READINESS, the chart below can provide a useful indicator of the key factors which, in combination, can accurately predict a current Value proposition.
Critical within the above chart is the focus on Risk Factors — a 360 assessment of the major Value Drivers within any business — from Financials to Marketing to Client mix, Systems, People and IP. E.g. in today’s business environment you can no longer afford to underestimate the value of Data Security.
Kevin Astle is the Founder and Managing Partner of MultiVisory International. Having worked on both sides of the Atlantic and on both sides of the Client/Agency desk across North America, he brings an international perspective and deep, multi-sector knowledge and network to his Clients.
