The #1 concern business owners have about selling their business
This article is Part 1 of a 3 Part series of articles related to the sale of businesses. Part 1 addresses, “The #1 concern business owners have about selling their business.”
There are 20 million privately held companies in the United States. If you drill down on that number, 5 million have at least one owner and at least 5 employees. If you drill down on that a little bit more, there are 150,000 that have sales between $9 million and $100 million.
If you were to guess how many U.S. based privately held companies, were sold in 2016 out of this population, what would be your guess?
The actual number of sales in 2016 was 9,139. The average from 2007 to 2016 was 8,427. The percentage change between the prior year (2015) was a negative 8%. Even though 2016 was down from the prior year, it is above average in terms of history of sales of U.S. based privately held since 2007.
Why are the number of privately held companies so low when compared to the millions of existing companies in the USA? First, let’s dismiss some of the myths related to this subject.
Regarding potential buyers, there are a lot of buyers. We could probably increase this number probably 8 or 10 times. There are enough buyers to buy much more than was sold in 2016.
Regarding the availability of money, there is a lot of money on the street. It’s been estimated that there is about $3 trillion on the street in private equity funds. It was reported that a fund, just by itself, raised $589 million to buy businesses. So, it’s not money, there’s plenty of money to purchase companies.
So why aren’t more companies being sold?
Some businesses aren’t ready to sell because they aren’t making enough money. Additionally, some owners don’t want to sell.
But a lot of them do want to sell their companies. The low number of sales is, to some degree, self-imposed. The limitations are self-imposed by the owners of companies.
Business owners need education and knowledge about how to sell a business. Be sure to attend one of the upcoming The Business Sale Solution™ seminars, where B2B CFO® will give you the answers to the tough questions about selling or transferring your business.
In the first section of The Exit Strategy Handbook, 4th edition, is a proprietary survey of business owners at the Inc. 500|5000 Conference in Washington DC. They were asked a lot of questions. One of the questions was, “What are your concerns about selling your business?”
About half of them were concerned about business valuation. And what they meant is “What is the value of my company? How is it valued? And if it’s not valued high enough how does one increase company value?” There’s another 13% of business owners who are concerned about the sales price. How much do I sell it for? Sales price is the same concern as valuation. One goes with the other. So, 62% of your peers are concerned about valuation, so that’s a subject worth talking about.
One of the difficult things about valuation is there are so many different types of methods to valuate companies, and these are just a few.
Different Valuation Methods:
Discounted Cash Flow Method
Comparable Company Method of Valuation
Asset Accumulation Method
Acquisition Debt Value
The other thing that’s frustrating is valuation people often will use one or more of these methods simultaneously in the valuation of a company. Be sure to check out one of the upcoming The Business Sale Solution™ seminars, where B2B CFO® will do a deep dive into valuation.
NEXT MONTH’S ARTICLE: PART 2 – WHICH TYPE OF BUYER IS BEST FOR YOU?
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