By Greg Maddox, a senior business advisor with Cultivate Advisors
Over 70 percent of businesses fail to reach their 10th birthday. Of the remaining 30 percent who survive past their 1st decade, most will end up simply shutting down their businesses when the time comes to leave, reaping nothing from years of hard work and sacrifice.
For the rare owners who build something worth selling, more than 1 in 4 go through a lengthy sales process only to find that the deal falls apart before closing.
The stats are not in your favor as a founder looking to exit, but can you do something to change the game to your benefit?
The answer is YES if you understand the root cause of these results with enough lead time to do something about it.
Simply stated, the two big reasons why most exits fail are:
- The business isn’t ready
- The owner isn’t ready
Most of us intuitively understand what business readiness means. However, many overlook the impact of owner readiness. So let’s quickly explore both.
Signs of a business that isn’t ready:
- Lack of well documented and transparent financial reporting
- No clearly documented growth strategy
- Over concentration of revenue from a few key customers
- A business model that is constantly short on cash
- Lack of predictable or recurring revenue
- Lack of a truly differentiated product or service that stands out in the market
- Can’t quantify customer satisfaction
- Over-dependence on owner involvement
Signs that the owner isn’t ready:
- No clear vision of what they want their next chapter to look like
- Lack of flexibility on potential exit options and deal structures
- Life and identity consumed by business
- Lack of financial readiness—all eggs in the business basket
Exiting a business on your terms and timeline is hard, even if your company is sellable. In the best of circumstances, several things could make your exit fall apart before you get your big payday:
- Valuation gap in pricing
- Unreasonable buyer or seller demand
- No market for your business
- Seller misrepresentation
- Lack of capital to finance your business
- Economic uncertainty
Chances are that you don’t have ALL of these business and owner issues. But you likely have some of them. The good news is that you can solve all of these issues with enough lead time.
At the end of the day, exit planning isn’t about getting you and your money out of the business at some point in the future. It is about getting what you want out of your business starting today.
And by taking the actions necessary today to address the problems outlined above, you’ll end up creating a level of business freedom, financial freedom and personal freedom years ahead of schedule that will only enhance a future exit.
If you’re not sure where to start, you don’t have to go at it alone, we’ve partnered with thousands of small business owners to help them create a customized exit plan. Schedule a free two-hour session to dig into your business and develop a plan.
About the Author…
Greg Maddox is a senior business advisor with Cultivate Advisors who specializes in exit and succession planning and is the creator of The ExitLifestyle Accelerator. He follows a unique and proven process that has helped over 700 business owners successfully scale, sell or passively own their businesses on their terms and timelines.