My business partner, the author Jack Beauregard, and I recently had breakfast with Lorraine McGregor from Vancouver, BC Canada. Lorraine is the author of books on Exit Planning and Entrepreneurship, as well as an experienced business consultant. We were all discussing why so many business owners were delaying (the inevitable) transition planning from their businesses.
A lot of talking
Lorraine talked about how she had spent 3 years speaking about the need for exit planning, hired a person to call major trade organizations in an effort to reach business owners and had countless conversations with owners (and other advisors). Not much changed. One day she said enough, this isn’t working; but what will?
It’s about profits, stupid
Lorraine then said something prophetic. Because business owners who have consistently profitable businesses have more exit options, those in the exit planning community should start talking about helping business owners make their companies consistently more profitable. Sounds simple, and yet I see too few advisors doing so, or even talking about it.
In her typical fashion, Lorraine didn’t just say this over a nice meal along the Charles River in Cambridge, MA. She changed her model to focus on what business owners really wanted to hear. Guess what? It’s working now. But then she did something else. She recently wrote a book about it, How to Increase the Value of Your Business Before You Sell… and Make it Profitable Now! It’s a quick and solid read for a business owner of any age, and advisors would do well to read it too (it’s available everywhere).
Toughen up and get a framework
In her book Lorraine instructs exit planners to ask tough questions along the lines of “Do you still have the fire to move forward, to make the business become more profitable?” If not, she added, your exit options will be much, much fewer. She describes what a saleable company is, and asks you to compare yourself. If you are lacking in many areas, it is better to know now than when you want to sell. Other topics include what dealmakers look for in a company, as another benchmark to measure your company. She then talks about a four step framework that any business owners can set up.
You are not so special
She did research on businesses and business deals with Capital IQ in Canada (but I am sure they correlate to the US and beyond):
- There are 3.6 million businesses
- 70% wanted to sell in the past five years
- 199,474 actually got a deal done
- 7 million Owners who wanted to sell are STILL running their unsellable companies today or have CLOSED. These owners are (or were) unaware of what it took to become a sellable business
- There is $10 Trillion in wealth looking for saleable businesses
I hope, I hope, I hope
I couldn’t agree more with Lorraine’s main points. I really hope more advisors get the message and start collaborating with others who can help the owners make their businesses into saleable companies, before they talk about exit planning. I hope business owners also get the message that they can’t do it alone – but that there are really great people such as Lorraine and her husband Rob, who will help them drive up the value of their companies, so they can retire to better lives. I hope owners see that a profitable company is one part of a better life, and that they need to create plans for a new life after they leave the business, or they risk ending up with more money but a less meaningful life, which truly would be a shame.
Thanks Jim. Your comments are quite valuable!
Lorraine’s feedback on reaching business owners through profitability recommendations is a good one. It’s hard to understand why it is so hard to get business owner’s attention when only about 20% of businesses ever sell, while most business owners have 50% to 90% of their personal net worth tied up in their business. You would think that fact alone would motivate them. But …
We all just need to keep “pounding” to get that word out. Holly Magister has put together this outstanding website to educate business owners. We are also trying to do our part through the How to Plan and Sell a Business website http://howtoplanandsellabusiness.com/ which contains 90 sequential articles addressing all aspects of preparing for the sale of a business.
Regarding profitability, our article titled “Low or Inconsistent Gross Margins” (which is one of the top obstacles to a successful sale) provides a real-life example, one in which I was a participant, of a company that was not saleable because of very low gross margins and low profitability. The company made a definitive decision to push the gross margins to the maximum extent possible and generated $725,000 of Seller’s Discretionary Earnings for several years thereafter. Ultimately, I sold that business for more than $3,000,000. Here’s the link to that article http://howtoplanandsellabusiness.com/how-to-sell-a-business-newsletters/low-or-inconsistent-gross-margins/