Sadly, most small business owners spend little or no time planning the exit from their operations. The International Business Brokers Association conducted a survey of business brokers in the fourth quarter of 2024. In the survey, over 70% of owners with company values of less than $1 million perform no exit planning. Another 18% of these owners spent less than a year planning their exit. These results are alarming. In the market for the sale of businesses, the last three to five years of financial performance are the most important financial information considered by buyers. If a seller spends little or no time getting the operation ready for sale, then the seller is probably at a disadvantage when it comes to valuing the business. For example, if the operation has a concentration of earnings issue (i.e., most of its gross receipts come from a few sources), that issue needs to get resolved years before the operation goes on sale. If the company's financial statements contain questionable expenses or sources of income (i.e., personal expense not related to running the business, cash receipts not part of the general operation), the seller needs to resolve these matters before taking the business to market. If these issues persist, buyers may discount to value of the business or worse, not make an offer to buy it.
Owners of businesses valued over $1 million fared better. About 15% of them conducted exit planning 1 to 2 years prior to going to market. However, this lack of exit planning is unfortunate. If you are not doing exit planning, reach out to us or your financial advisor for a referral.
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