LUTZ BUSINESS INSIGHTS
Why Exit Planning Matters
RYAN MCGREGOR, LUTZ M&A MANAGER
When it comes to exit planning, I think the quote “Can’t see the forest for the trees” applies too many times to business owners. Business owners are very good at dealing with everyday decisions, but they forget that a main reason they are in business is to get paid for their years of service. They have put their blood, sweat and tears into their business and now it’s time that they reap the benefits. The problem is that research indicates less than 10% of business owners have a formal exit strategy in place. This is staggering considering research also indicates approximately 90% of business owners rely on the sale of their business to provide security upon retirement.
So if only 10% of business owners have a formal exit strategy, “Do the other 90% of business owners know a fair price for their business?” This is where business valuation enters the exit strategy process. Most people get physicals to make sure that they are healthy and to catch any problem areas before causing too much damage. A physical also gives the individual the peace of mind that they have done as much as they can to minimize surprises. Think of a business valuation as the same. It is a checkup to make sure what you think your company is worth is in line with what the market says it is worth. There are several factors that go into a valuation, but one of the most important is to look at company specific factors of risk. These are unique to the company, and some are controllable and some are not. The controllable factors are similar to the news we hear from the doctor, telling us what we need to change, but ultimately the decision is up to us. For business owners, a business valuation minimizes surprises that can occur during the sale process.
Surprises can lead to the biggest reasons why deals are not closing, according to the research provided below. Every quarter the International Business Broker Association (IBBA), M&A Source and Pepperdine University’s Graziadio School of Business and Management present a survey called “Market Pulse” that outlines the trends in the mergers and acquistion industry. The 4th quarter 2013 Market Pulse survey1 was completed by 238 respondents, with a majority having at least 10 years of experience in the M&A industry.
The survey highlighted the biggest mistakes and contributors to getting deals done in 2013.
As Benjamin Franklin said, “By failing to prepare, you are preparing to fail.” When you are a business owner that has put so much time and effort into growing and nurturing your business, it would be unfortunate to be unprepared for the most important sale of your life.
Market Pulse Quarterly Survey Report Fourth Quarter 2013.” 12 Feb. 2012. Web. 16 Sept. 2014. <http://bschool.pepperdine.edu/appliedresearch/research/pcmsurvey/content/marketpulse_13q4fin.pdf>.
ABOUT THE AUTHOR
RYAN MCGREGOR + CONSULTING DIRECTOR
Ryan McGregor is a Consulting Director at Lutz M&A with a combined 14 years of related experience. He specializes in business consulting, valuation, and sell-side advisory services.
AFFILIATIONS AND CREDENTIALS
- Alliance of Merger & Acquisition Advisors, Member
- National Association of Certified Valuators and Analysts, Member
- Certified Merger & Acquisition Advisor
- Certified Valuation Analyst
- BSBA in Management, University of Nebraska, Kearney, NE
- Master of Investment Management and Financial Analysis, Creighton University, Omaha, NE
- Master’s in Business Administration, Creighton University, Omaha, NE
- Past volunteer for various local nonprofit organizations including: Juvenile Diabetes Research Foundation (JDRF), Habitat for Humanity, Red Cross and Open Door Mission
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