The law of supply and demand is in full force when it comes to the likelihood that most private company owners will be able to sell their company at all or else, sell it for anything close to the value they expect to receive.
The following compelling, if not overwhelming statistics come from the likes of Pepperdine University’s Private Capital Markets Project, Price Coopers Waterhouse, The Exit Planning Institute, INC. Magazine and the Small Business Administration.
Every one of these metrics is working against company owners’ ability to sell or even transition their company to the next generation.
- Over 10,000 baby boomers turn 65 every day.
- People age 55 and older own over 30% of all companies with employees.
- Over the next 12 to 15 years, over 8 million companies will be sold
- Or, looked at another way, 35% of businesses are owned by people over age 65.
- The average business owner retires at age 71. What do they do if they have no buyer at that time?
- 83% of business owners want to see their business continue on.
- 80% of businesses will never sell. They will simply wind down and close their doors.
- Only about 33% of boomer companies successfully transition to the second generation.
- Worse, only about 13% of boomer companies successfully transition to a third generation.
- Even now, in one study, only 8% of companies listed for sale today with revenues under $30 million will actually ever sell.
- A 3 to 5 year exit planning window is ideal but a minimum of two years is a must. Way too many business owners simply wake up one day, decide to sell and are then shocked to find out what their company isn’t worth or that no one will buy it.
- Finally, only about 13% of company owners have any kind of exit plan or timetable in place.
With these overwhelmingly unfavorable metrics amounting to terrible odds for a successful exit, it is frightening that only about 5% of business owners actually know the accurate value of their company. Value expectations are frequently wildly above market and they count on that windfall to finance their retirement. Then, they rarely calculate the net effect of that windfall after deducting the rapidly escalating impact of taxes.
Note: If you have an interesting and/or educational CEO story of Head Noise caliber, write to me at firstname.lastname@example.org. I’d love to speak with you and share your story in my Head Noise blog. You can tell your story either on the record or, without attribution.
Cameron Bishop is a partner with The Capitus Group. The firm provides comprehensive business value enhancement and transition strategy solutions. Partners and Advisory Directors comprise an experienced team of business professionals who have successfully owned, run, grown and sold companies. Capitus utilizes proven value enhancement and risk reduction techniques to enable superior transition options.