I work with many specialist Accountants, Solicitors, Bankers, Finance Brokers, Specialist Valuers, to name a few. What I have learnt along the way is the practice may seem a great opportunity to a potential purchaser, but the majority of practices being sold or transferred are revalued downward during Due Diligence, or even dropped completely. This figure is over 65% private sales or through a broker.
Why? The Practice Readiness/Exit Plan is not thoroughly complete…it’s that simple!
In the next 4 posts, I would like to offer you valuable information from my team that in some cases has meant the difference between achieving top value and a successful exit strategy on the principles terms. You may not be in this space right now, but I still hope you find the information helpful.
What exactly is Practice Readiness/Exit Planning?
You know how to start a Practice – you’ve done it. You know how to run a practice – you’re still doing it. But do you have any idea how to leave your business? Most of us don’t. In fact, leaving a business is a subject that’s relatively ignored. And if you’re a “Baby Boomer” then this information is even more relevant!
Practice Readiness/Exit Planning is the strategic process that helps you successfully transition out of your business—on your terms—allowing you to reap maximum rewards for the time and effort you’ve invested in your business or practice.
Practice Readiness/Exit Planning is a comprehensive approach to optimizing the value of your practice while preparing well in advance for the personal, corporate, legal, financial, and tax considerations of saying goodbye to it, and hello to the next adventure in your life.
Practice Readiness/Exit Planning aligns your goals and objectives with your personal and corporate realities to create a plan that gets you as close as possible to realizing your ideal outcome. It also leaves as little to chance as possible by building in contingencies to help you deal with the unexpected. This is known as reverse due diligence, and we will cover this in week 4.
FACT: Baby Boomer Entrepreneurs Will Retire in Record Numbers
It’s predicted that over 75% percent of Baby Boomer owners, the ones that currently own 65% of small businesses, plan to transition out of their businesses in the next decade.
This mass exodus is the natural result of the largest generation in history reaching retirement age. (The first baby boomers turned 65 in 2011.)
However, this mass exodus will likely occur in a more compressed timeframe because many have already delayed selling their businesses due to the 2008-2009 recession and stock market plunge volatility. Which we are only coming out of now, the result will be a flood of businesses hitting the market at once.
Question: Will there be enough buyers and capital to purchase all of these businesses and in our case practices? Not likely. We all know what happens when supply outstrips demand: prices fall and marginal businesses don’t sell, so only the best in class and well prepared practices, will achieve a successful outcome.
FACT: Most Small Practices Are Not Saleable
Research indicates that 90 percent of practice owners are depending on the proceeds of their businesses for retirement security, but fewer than 10 percent of those same business owners have a formal Practice Readiness / Exit plan in place.
According to the US Small Business Administration and the International Business Brokers Association, over 80 percent of general businesses aren’t saleable because owners haven’t addressed critical flaws or prepared properly. (We call that Business or Practice Readiness / Exit planning!)
Nine out of ten principles need to get top dollar for their businesses, but only one in ten has a plan in place to achieve it. These owners are facing a critical process that will affect the rest of their lives, and they’re not even planning for it. Most have little idea what their practice is worth or if they’re even saleable in their present state of readiness.
FACT: Most Former Practice and Business Owners Wish They Had Prepared Better
Price Waterhouse Coopers interviewed over 300 business owners who had sold or exited their businesses within the previous 12 months. Surprisingly, 75 percent regretted their decision to leave and only 5% were happy with their net proceeds.
Some thought they might have left money on the table. Others worried that their timing had been off – perhaps they should have exited earlier or held on longer.
A third group reported not understanding their options, or not hiring the right advisors.
Why Preparation Is Key
Remember when you were starting your business?
If you’re like most of us, odds are you didn’t know exactly what you were doing all the time, and had to learn along the way. Yeah, it was probably fun, but you may also have said to yourself every once in a while, “If I knew then what I know now…”
That’s exactly what you don’t want to have to say after you’ve left your practice. By not preparing to exit your practice properly, you’re leaving yourself open to all sorts of unpleasant scenarios when you finally do exit -unforeseen selling or succession issues, paying more tax than necessary, issues with your family or employees, the very viability of your business—and the plans you have made for your future.
You certainly won’t have time for the kind of steep learning curve you had at the start of your business, and you won’t get a second chance. However, tackling the Practice Readiness / Exit Planning process early puts you in control of the timing, options, and outcomes of your transition and allows you to engineer the results you deserve. It also creates many tangible benefits that apply to your personal and professional life right now, as well as in the future.
Next week’s post we will address:
• Preparation for Sale Assessment and Action Plan
• The Hidden Benefits of Early Preparation
• Thinking of Selling Your Business?
• When Should You Sell Your Business?
• Business Timing
• Personal Timing:
• Market Timing:
• Want Maximum Value for Your Business?
• What is and Why Reverse Due Diligence?
• Do you know the answers to these questions?
• How Will You Ensure Your Success?
• Top 10 Value Enhancement Insights
• Top 10 Preparations for Sale Strategies
• And last of all No BS
Every practice where we have been involved in the planning and sale process, have achieved successful outcome and satisfactory sale price, sometimes it’s even been up to 18 months prior to selling.
How? Because we work in conjunction with the owners and their specialists to create a bullet proof Practice Readiness and Exit Plan.