The IBBA and M&A Source Market Pulse Survey Report for the fourth quarter of 2018 has a range of interesting insights.  The survey’s purpose is to provide an “accurate understanding of market conditions for businesses being sold in Main Street (values $0-$2MM) and the Lower Middle Market (values $2MM-$50MM).  This national survey was designed as a tool for business owners and their advisors and has the support of both the Pepperdine Private Capital Markets Projects and the Pepperdine Graziadio Business School.

One of the most striking facts to leap out of the report is the fact that a full one-third of advisors fully expect the strong market to end this year.  Overall, advisors are not optimistic that the current climate will continue through 2020.  In fact, advisors are encouraging sellers to consider placing their businesses on the market now, while the market is still strong.  This is according to Craig Everett, PhD and Assistant Professor of Finance and Director of the Pepperdine Private Capital Markets Project.

One fact from the report that could be overlooked is that only a mere 8% of advisors expect the current climate to last for 48 months or more.  Additionally, only 9% believe that the current climate will last between 24 to 48 months.  Perhaps most striking of all is the fact that 60% of advisors feel that the current climate will end within the next two years.

Business owners who are considering selling should be advised that almost two-thirds of advisors now feel that there will be a significant shift in the next two years.  Considering that it can take a year or more to sell a business, business owners would be wise to consider this important fact.

The report sites Neal Isaacs, Owner of VR Business Brokers of the Triangle who states, “Deals are taking longer in due diligence as buyers work hard to validate their investment and make sure that what they’re buying is worth the premium price today’s sellers are commanding.”

So, is now the time to sell?  Many experts feel that it is possible to lose a sizable amount of value if one waits too long to sell.  Even just a few months can make a huge difference in terms of perceived value and the ultimate sales price.  Working with a professional is a key way to ensure that you are selling at the right time and secure the best possible price.
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Copyright: Business Brokerage Press, Inc.

Excerpt from 'Moving Forward'

Over the last couple of years you've kicked some tires, read a few articles or books, spoke to a few friends and maybe some professionals with experience in selling businesses. Then you put it all on hold because selling your business was never a serious consideration. After all you were still young.

If you read the business press today, it is shocking the number of Boomer Aged Business Owners with no real plan to sell their business. In Canada it's estimated there are 550,000 Boomer Aged Business Owners.

1. Over 75% of you plan to sell within the next 10 years. That's a lot of competition.
2. Less than 10% of you have a team, formal exit or succession plan in place.
3. Over 82% expect the sale of your business to fund your retirement. That's a lot of pressure.

As I said earlier, over the years I've worked directly with hundreds of owners of small and medium-sized businesses, like yourself. And spoken with many more. It is disturbing to realize the number of entrepreneurs who don't have a real exit strategy in place. There is no thought out plan to sell or transition your business.

In addition there are a huge amount of business Owners willing to let your businesses go for well under what you could sell for. Mainly because you don't want to do the work to prepare the company for sale.

Or you've chosen to ride it out for a few more years, taking as much cash out of the business as you can and then plan to just close the doors with little or no thought for the negative impact on
employees, vendors and customers. Let's not forget our economy which is not even close to being ready to absorb the impact of hundreds of thousands of Owners shutting down over a concentrated period of time.

The other option being considered by Owners is to 'die with your boots on'. These are the Owners planning to work until you drop. A plan based on loving what you do, working is an economic necessity or you simply don't know what else to do with your time. Or whatever story you want to tell yourself.

In many cases, initially, you're taking business selling advice from your current lawyers and accountants. Which is great if the trusted advisers have experience buying and selling companies. Not so good if they don't.

You are letting your baby go for 2, 3 or 4 x EBITDA* based on a volume of sales well below what it could be. Increased sales, a reshuffling of people, improved marketing, better operations and financial controls could all help to increase EBITDA* and therefore garner a sale price 6+ X. Especially when your annual sales break the magic $10,000,000 level. You could sell for far more than you have ever imagined was possible. It just requires some preparation.

*Commonly abbreviated as EBITDA, an accounting measure to calculate a company's net Earnings, Before Interest expenses, Taxes, Depreciation and Amortization are subtracted. Used as a proxy for a company's current operating profitability.

You could wait a few years and receive much more for your business. Anything done to increase the value of the business will help to make the company more desirable to a Buyer and valuable to you the Owner.

For years you considered improvements to your marketing, operations, finance and sales departments. Thought about enhancing technology, or even replacing staff. But you never followed thru.

Every SMB I've ever visited always included the obligatory tour. The Owner inevitably introduced his staff as: This is Jeff our Marketing Manager but he's not really a marketing person more a sales guy. Meet Susie our Controller, but she's really only qualified as a bookkeeper. Jan who doesn't get along with anyone but I keep her anyway. And my children who couldn't get a job elsewhere so they work here, etc.

Always one step below what they should be. No not the whole staff or you wouldn't have a thriving business. Just a few key players who help to keep you back or cause some frustration. Well now you may want to reconsider. The new Owner will be assessing your people and your judgement in people. They will be spotted and quickly. It will be held against you.

There are good ideas not acted on because they were an unnecessary expense or it was so much work you just didn't bother.

If you have an established business, consider returning to why you got into the business in the first place. Get in touch with what you were passionate about and determine how to get back to doing the things that you can’t wait to do each day.
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There is no shortage of experienced folks to perform the functions you are not comfortable with or even qualified to do. Stop doing the stuff you hate and spend more time working on the business not in the business.​

Some food for thought before handing your business over to a next generation family member.
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I remember meeting the Owners of a small business. He had worked hard and the company had provided his family with a comfortable life.

There were 3 sons. One worked occasionally in the business, wasn't suited to take over and never really did much with his life. A second son had other ambitions and enjoyed a very successful career in law. As for the third son, unlike his brothers, he worked in the business full time, made a living and started his own family.

So when it came time to think about transitioning and rather than selling the company to an outsider, the Owner along with his spouse made a decision based on emotion and blood. 

The third son thought it was his right to take over the company. Although under qualified and not yet possessing the maturity to succeed, the Owner turned the company over to him. With no cash investment, only sweat equity, winning by default and having day to day experience working in the business he was charged with preserving the family golden goose.

Thinking far more of his own capabilities, having no real transition plan or safeguards put in place by the Owner (his Father) and now being in charge the third son made the decisions his way. As the Owner had an ailing parent, some health issues of his own and other distractions he was not always available for counsel or oversight.

The immature third son saw this as an opportunity to put his own mark on the company and in the process promptly drove the business into the ground along with the Owners' life savings and retirement funds. Fortunately the successful son, the lawyer, had the means to take care of the parents as the other two did not.

Why did the parents turn the business over to the ultimately unsuccessful son? As I wasn't present at the family Sunday night dinners, I'll never really know. What I do know is that people make poor decisions and do stupid things for blood.

I also know that it's in my power to repeat this story as often as possible. So it doesn't happen to your family. I'm sure everyone had the best of intentions. But that only takes you so far.

Three key questions to ask before you even consider handing your company over to the next generation.

1. Do they want the business?

2. Are they qualified to run the business successfully?

3. Can they afford to buy the business from you?

And one more key question you need to ask yourself. How will this decision affect the rest of the family?

At WarrenBDC, we have developed a special group exercise to quickly gain insight into what the future of your company might look like if you make this kind of choice.
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To discuss the options and our services available to increase your odds for success please contact me today. 
Call 416-270-2466 or email eric@warrenbdc.com

Cheers, Eric
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Stats on the state of the boomer business owner world, from the 'State of Owner Readiness' survey 2016.

1.   Boomers own 63% of private businesses.
2.   80-90% of their wealth is tied up in their business.
3.   76% plan to transition over the next 10 years. 48% in the next 5 years.
4.   12 months after selling 75% of owners 'profoundly regretted' the decision.
       (Want to know how to avoid the whole regret part?)

Have I got your interest?
 
5.   70-80% of businesses put on the market don't sell.
6.   Less than 30% of family-owned businesses survive into the second generation.
7.   67% of boomer owners are between 50 and 69 years old.

Stop for a minute and take it in. Now continue.
 
8.   75% have an annual revenue of under $5 million.
9.   85% of family owned businesses are first generation.
10. 24% say you're familiar with transition options. 44% aren't and 32% are not sure.
11. 88% have NOT established a formal transition team.

Sounding familiar?
 
12. 86% have no formal education related to transitioning your business.
13. 67% have no provisions in place if key personnel get ill or die.
14. 50% have no thoughts about your post transition life after the business.

Wow that was a mouthful. Take another minute and let it sink in.
I will guarantee you one thing. You don't know what you don't know. And that will absolutely lead to a whole lot of trouble. The challenge is who do you talk to?

Here is just one example of the misguided thinking many boomers are doing.

You think if you keep the company for a few years longer and take as much as you can out it will more than make up for what you think you could sell for today. Then, in a few years, you'll sell for whatever you can get or just close down. 

Nice plan, unfortunately, putting off selling or even just getting the company ready for transition or 'dying with your boots on' are not really exit strategies, now are they? 

What if, in the meantime, you get ill or worse? The mess you'll leave behind for family, partners, management, employees, customers and vendors will ensure they talk about you for a long time to come.

It's not all doom and gloom. There is a silver lining.

What if you could delay selling, keep taking money out, increase the value of the company and sell for more later. More than you think you could get now. 

Have your cake and eat it too. Hmm, that is worth looking into.

As a successful business owner, you're smart enough to at least consider all the other options available to you. But where do you go to find out about them? 

Excerpt from 'Moving Forward' Eric's book.

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At WarrenBDC, we may have some of the answers you're looking for.

If you want to speak with me right now, that's great. If you need to know more about us first, simply take a few minutes to look at our website www.warrenbdc.com. Get to know us a bit better and then call or email. Whatever works best for you.

Do it on your own schedule and if anything twigs for you ... feel free to give me a call at 416-270-2466 or email eric@warrenbdc.com.

Thank you for opening and reading my emails. I work hard at providing information and insights I believe are of value to you.

Cheers, Eric