by Scott Bushkie, CBI, M&AMI
It’s an unfortunate reality of the M&A industry that some of our clients come to us because they’re sick. At Cornerstone, we’ve worked with people who’ve had a terminal illness and those who were trying to regain their footing after a stroke.
In almost every case, we’ve been able to help these owners sell their business. But all things being equal, these sellers may have left some money on the table. Perhaps their business suffered as their health declined, perhaps they lost some leverage in negotiations, or maybe the buyer felt the owner’s health represented a serious measure of risk.
As part of the Market Pulse survey, conducted by Pepperdine University, IBBA and M&A Source, we track the issue areas driving sellers to market. In Q1 2014, health cropped up as one of the main factors triggering sales in the lower middle market. This was the first time we saw health play a significant role in the survey, and it leads me to believe we’re seeing some latent impact from the Great Recession.
Considering a typical retirement cycle, we know that many older boomers should have started to sell in 2008 or 2009 but held on through the recession. Now, five tough years later, some of them are starting to experience age-related health concerns.
It’s a lesson that reminds me of the importance of planning your exit strategy from your first days in business. I always advise owners to figure out what they want out of the company and then work toward that goal, not a retirement age.
The Market Pulse survey also asks advisors to list the biggest mistakes sellers make when trying to sell a business. “Waiting too long” is always one of the top concerns. It comes hand-in-hand with issues like burnout, poor performance, and declining sales—all “waiting too long” problems that can occur at any age.
What’s more, whether you’re 22 or 102, you need a worst-case-scenario plan. What will happen to the business if you’re in an accident or get sick? Will you sell right away? Who will make the decisions when you can’t?
When there’s a lack of communication or direction in a business, your key employees (the ones who are most talented and most mobile) will start to look for more stable jobs at some point. Meanwhile, competitors may try to poach your customers the minute they smell blood in the water.
According to studies I’ve read, approximately 85 percent of business owners don’t have a written exit strategy. That’s too bad because exit strategies, both long-term and emergency, can go a long way toward alleviating performance issues and preserving your legacy and value in your company for your loved ones.
When it comes to selling your business, health issues may force your hand…but they don’t have to put your company at a disadvantage, if you have a well thought out plan.
Scott Bushkie is Principal of Cornerstone Business Services, an M&A Advisory firm. To request a book with advice on the exit planning process, or to discuss other confidential options, contact Scott at (920) 436.9890 or [email protected].